business plan commodity trading

• Learning Center
• Trading Account

How to Create a Commodity Trading Business Plan

The roadmap to your commodity trading plan.

Commodity trading, like any other form of investing, can make or break your financial future. If you're new to commodity trading, it's important to realize that, unlike other forms of investing, there's little regulation on commodity trading and no clear path that most traders follow in their careers.

Commodity trading can be complex, but it doesn't have to be difficult. If you start with the right plan that lays out your strategies and goals, you'll have the structure you need to learn from your mistakes and continue towards success in the industry. 

What is Commodity Trading?

Invest right, invest now.

Open a FREE* Demat + Trading account and enjoy

Zero commission* on Mutual Funds and IPO

₹20* per order on Equity, F&O, Commodity and Currency

Enter your mobile number to continue

*By signing up you agree to our Terms and Conditions

The two most common ways to trade commodities are futures and options contracts. When you trade futures, you agree to buy or sell a commodity for delivery in the future. The commodity trading time in India is from 9 AM to 11:3 PM.

Define Your Goals

Your commodity trading plan should be based on your specific goals. Perhaps you want to trade for income or to speculate on price movements. Maybe you want to hedge your physical holdings or trade for capital gains. Define your goals before starting to trade to develop a plan that fits those objectives.

Next, assess your personality type: Do you like taking risks? Are you interested in analyzing supply and demand fundamentals? Do you prefer to use technical analysis techniques? Once again, this step is about defining what suits your trading style best. Finally, analyze the time commitment: If time is an issue, opt for less frequent trades instead of day-trading .

Develop Your Strategy

Now that you know what a commodity trading plan is and why you need one, it's time to develop your strategy. Here are a few steps to get you started:

• Figure out what commodities you want to trade. Research and identify which commodities fit your trading style and risk tolerance.
• Decide how you're going to trade. There are a few different ways to trade commodities, so make sure you choose the method that best suits your needs. If you're an active trader who likes to take high risks and place many trades, then day trading may be right for you. If you have more capital or prefer slower-paced trades with less risk, then maybe investing in futures contracts would be better for you.
• Define your expectations. What do you hope to achieve by starting this new business? How much money do you want to earn? By when? What kind of trader do you want to be? Day Trader? Swing Trader? Part-time Trader? Long-Term Trader? Day traders typically hold positions from 30 minutes to three days, while swing traders hold positions from three days up to six months. No matter the trader you decide to be, make sure you define your expectations before moving forward!

Find the Right Commodity Broker

Not all commodity brokers are created equal. To find the right one for you, do your research and ask around. Make sure to look at their track record, fees, and the products they offer. Once you've found a few brokers that seem promising, open up a demo trading account with each one and test them out.

See which one you're most comfortable with before making a decision. As far as which commodities to trade, it depends on what your goals are. For example, if you want stability but don't want exposure to the price fluctuations of gold or silver, trading agricultural commodities like corn or wheat may be more suitable for you.

If you want more risk exposure but also want exposure to gold or silver (or other precious metals), then trading these commodities may be better suited for your needs.

Develop a Risk Management Strategy

A well-defined risk management strategy is critical to the success of any commodity trading plan. There are a variety of risks inherent in trading commodities, so it's important to identify the ones that pose the biggest threat to your success and develop a plan to mitigate them. It is recommended to start with your ability to maintain liquidity.

If you can't meet margin calls or pay off debts as they come due, you could be forced into bankruptcy. Second on my list would be market risk, which includes exposure to changes in prices and volatility of commodities markets as well as interest rates for borrowing money (the cost).

Third is transaction costs, which refer to commissions and the spread between the buy and sell price you'll incur when executing trades.

Set Up Your Commodity Trading Account

Before starting trading commodities, you need to set up a commodity trading account . This account will be used to hold your funds and will be where you execute your trades.

To set up an account, you'll need a broker that offers commodity trading. You'll then need to open an account and deposit funds. Once your account is funded, you're ready to start trading.

Start to Trade

When you first start trading commodities, it's important to have a plan in place. This plan will be your roadmap, guiding you through the market and helping you make decisions along the way. What do you want from this trade? What kind of risk can you take? How much money are you looking to invest? How long are you willing to hold on before selling?

These are all questions that should be answered before making any moves. It may seem like a lot of work at first, but once you have a system in place, it will become easier each time.

Now that you know the steps in creating a commodity trading plan, it's time to start. Remember that your plan will evolve as you gain experience and learn more about the markets.

The important thing is to get started and stay disciplined. A well-thought-out trading plan can give you the structure and discipline you need to succeed in the commodities markets.

Explore More Fundamentals

It should be noted that there is no special software required to use these templates. All business plans come in Microsoft Word and Microsoft Excel format. Each business plan features:

• Excecutive Summary
• Company and Financing Summary
• Products and Services Overview
• Strategic Analysis with current research!
• Marketing Plan
• Personnel Plan
• 3 Year Advanced Financial Plan
• Expanded Financial Plan with Monthly Financials
• Loan Amortization and ROI Tools
• FREE PowerPoint Presentation for Banks, Investors, or Grant Companies!

1.0 Executive Summary

The purpose of this business plan is to raise $5,000,000 for the development of a commodities trading firm while showcasing the expected financials and operations over the next three years. The Commodities Trading Inc. (“the Company”) is a New York based corporation that will actively trade hard commodities and currencies among the many exchanges within the United States and abroad. The Company was founded in 2008 by John Doe.

1.1 Products and Services

The primary revenue center for the business will come from the direct trading of commodities including corn, oil, precious metals, and currencies on a day to day basis. The Company, through its established relationships with commodities brokers, will be able to amplify its returns through the use of significant leverage for the commodities purchased using the firm’s capital. The business expects that it will use 1:5 leverage on all commodities trades executed by the Company. The Company’s secondary stream of income will be derived from interest generated on capital held from short sales that are used in conjunction with the Company’s trading operations. Interest income will generate approximately 30% of the Commodities Trading Firm’s aggregate revenue. The third section of the business plan will further describe the investment management services offered by the Commodities Trading Firm.

1.2 The Financing

At this time, the Company is seeking to raise $5,000,000 for the development of the Commodity Trading Firm’s operations. Mr. Doe is seeking to sell a 75% ownership interest in the business in exchange for this capital. 90% of the invested capital will be used for direct investments into the firm’s commodity trading operations.

1.3 Mission Statement

Management’s mission is to develop the Commodities Trading Firm into a middle market investment company that specializes in trading specific agricultural, oil, and precious metal commodities with the intent to realize small, but continuous profits on a daily basis.

1.4 Mangement Team

The Company was founded by John Doe. Mr. Doe has more than 10 years of experience in the commodities trading industry. Through his expertise, he will be able to bring the operations of the business to profitability within its first year of operations.

1.5 Sales Forecasts

Mr. Doe expects a strong rate of growth at the start of operations. Below are the expected financials over the next three years.

1.6 Expansion Plan

The Company will to undergo an aggressive expansion after the successful completion of the initial capital raising period. As the laws that govern investment pools for commodities trading are different than those for general securities dealers/traders, the business may be able to solicit capital from the general public in a similar capacity to that of a registered investment advisory. Mr. Doe is currently investigating how the business can expand once trading operations commence.

2.0 Company and Financing Summary

2.1 Registered Name and Corporate Structure

Commodities Trading Firm, Inc. The Company is registered as a corporation in the State of New York.

2.2 Required Funds

At this time, the Commodities Trading Firm requires $5,000,000 of equity funds. Below is a breakdown of how these funds will be used:

2.3 Investor Equity

At this time, Mr. Doe is seeking to sell a 75% interest in the Commodities Trading Firm in exchange for the capital sought in this business plan. Please reference the Company’s private placement memorandum regarding more information regarding the Company’s fee and ownership structure.

2.4 Management Equity

John Doe currently owns 100% of the Commodities Trading Firm, Inc.

2.5 Exit Strategy

Management has planned for two possible exit strategies that would yield significant capital appreciation for the Company’s Management Team and Investors. First, the business could be sold in its entirety to a third party entity. At this point, Management would most likely leave the Company to pursue other ventures. The second exit strategy would be to engage a secondary capital raising that would allow Management and Investors to cash out a portion of the equity built into the business while concurrently providing the firm with more capital for trading. This exit strategy would still require that Management operate the firm on a day to day basis, so in actuality it is only a partial exit strategy. However, by raising a secondary or tertiary round of capital, the business could easily expand to become a much larger trading firm after the third year of operations.

3.0 Products and Services

As stated in the executive summary, the business intends to actively trade contracts, swaps, and options related to commodities including agricultural commodities, oil, precious metals, and currencies. The Company, prior to the onset of operations, will develop brokerage relationships with major commodities brokers that will place and manage trades on behalf of the Company. The business will specially select brokers that can offer the commodities trading firm prime brokerage capabilities which include expanded leverage for the Company’s investments. As discussed earlier, the Company intends to use conservative 1:5 leverage for most of its trades. However, most exchanges permit the use of 1:20 leverage for certain commodities. Currency trading can often provide leverage of 1:50 and up to 1:100 leverage depending on the type of trade. Management will only use larger amounts of leverage when the underlying commodities have been properly hedged using counteracting options. One of the primary strategies that the Commodities Trading Firm intends to engage will be delta neutral trading, which will allow the business to actively purchase options while currently hedging the values of the Company’s commodity portfolios. Delta neutral trading allows the firm to generate revenues on commodities (these types of trades are available on all commodities) trading simply through the volatility of the underlying positions. With the pace of inflation increasing significantly in the last year, Management sees a significant opportunity to develop substantial profit streams through volatility style trading rather than attempting to determine the direction of any given market.

4.0 Strategic and Market Analysis

4.1 Economic Outlook

This section of the analysis will detail the economic climate, the commodities trading industry, the customer profile, and the competition that the business will face as it progresses through its business operations. Currently, the economic market condition in the United States is in recession. This slowdown in the economy has also greatly impacted real estate sales, which has halted to historical lows. Many economists expect that this recession will continue until mid-2009, at which point the economy will begin a prolonged recovery period. Inflation is somewhat of a concern for the Company. As the inflation rate decreases, the purchasing power parity of the American dollar decreases in relation to other currencies. This may pose a risk to the Company should rampant inflation, much like the inflation experienced in the late 1970s, occur again. This event would significant weaken the Company’s ability to borrow funds (should the need arise), but it could also severely impact the gross margins of the business. After the business begins to trade in excess of $20,000,000 per year in revenues, the business may solicit a currency based investment bank to hedge against inflationary risks. This risk has been faced by many companies over the last five years as the value of the Euro/Yuan/Yen has appreciated significantly in its relation to the American dollar.

4.2 Industry Analysis

The financial services sector has become one of the fastest growing business segments in the U.S. economy. Computerized technologies allow financial firms to operate advisory and brokerage services anywhere in the country. In previous decades, most financial firms needed to be within a close proximity to Wall Street in order to provide their clients the highest level of service. This is no longer the case as a firm can access almost every facet of the financial markets through Internet connections and specialized trading and investment management software. With these advances, several new firms have been created to address the needs of people in rural and suburban areas. Within the United States, there are approximately 2,000 companies that independently trade futures and commodities contracts with the intent to generate a profit. Each year, these firms aggregately generate more than $25 billion of revenue while concurrently providing $10 billion of payrolls (including bonuses). More than 60,000 people are employed by the industry.

4.3 Customer Profile

As the Company intends to operate its trading operations via the free trading markets within the US and internationally, the Company will not directly have “customers.” In a sense, the customers of this firm are its investors as the Company is trying to develop a wealth and income creating vehicle for them and the Senior Management Team. However, and in the future, the Company may expand its capital base by soliciting additional investments from the general public. In this instance, the Company would need to register itself as a CTA firm with the Commodities and Futures Trading Commission. At this time, it is unclear as to what requirements would be needed in order for an individual to invest with the commodities trading firm as they differ substantially from other private investment vehicles such as hedge funds and private equity groups.

4.4 Competitive Analysis

This is one of the sections of the business plan that you must write completely on your own. The key to writing a strong competitive analysis is that you do your research on the local competition. Find out who your competitors are by searching online directories and searching in your local Yellow Pages. If there are a number of competitors in the same industry (meaning that it is not feasible to describe each one) then showcase the number of businesses that compete with you, and why your business will provide customers with service/products that are of better quality or less expensive than your competition.

5.0 Marketing Plan

As the Commodities Trading Firm intends to primarily trade for its own account, the marketing required by the business will be absolutely minimal. Mr. Doe’s marketing campaigns will primarily consist of familiarizing the Company’s brand name with other commodities traders and brokerages so that future joint ventures and investments can be made in the future. As discussed earlier, there is the possibility that the business may be able to solicit capital from the general public. In that instance, the Company will engage marketing strategies discussed below.

5.1 Marketing Objectives

• Develop ongoing relationships with commodities brokerages within the United States and abroad.

• Develop an informative website if the Company decides to solicit capital from the general public.

5.2 Marketing Strategies

Foremost, the Company will develop ongoing prime brokerage relationships with several commodities brokerages throughout the United States, Europe, and Asia. This will ensure that the Company can amplify its returns through leverage offered by these firms. Mr. Doe will distribute information, via an information packet, to these firms informing them that the Commodities Trading Firm is in business, its capitalization, and what types of trades the company most frequently engages. In regards to raising capital from the general public, the Company will develop an informative website showcasing the operations of the firm, Mr. Doe’s experience as a trader, proper investment disclosures, and relevant contact information. The website may also feature functionality so that investors can log in and track the performance of their account. If this website is built, the Company will hire an internet marketing firm to properly rank the site via search engine optimization and pay per click strategies.

5.3 Pricing

In this section, describe the pricing of your services and products. You should provide as much information as possible about your pricing as possible in this section. However, if you have hundreds of items, condense your product list categorically. This section of the business plan should not span more than 1 page.

6.0 Organizational Plan and Personnel Summary

6.1 Corporate Organization

6.2 Organizational Budget

6.3 Management Biographies

In this section of the business plan, you should write a two to four paragraph biography about your work experience, your education, and your skill set. For each owner or key employee, you should provide a brief biography in this section.

7.0 Financial Plan

7.1 Underlying Assumptions

• The Commodities Trading Firm will have an annual revenue growth rate of 19% per year.

• The Founder will acquire $5,000,000 of equity funds to develop the business.

• The Company will earn a compounded annual return of 17% on its commodities portfolio.

7.2 Sensitivity Analysis

The Company’s revenues are not sensitive to changes in the general economy. The Commodities Trading Firm will use a number of trading strategies to ensure that the business can generate profits despite increases or decreases in the value of any commodity. As such, the business should have no issues with top line income despite inflationary pressures or downward pricing pressure on specific commodities.

7.3 Source of Funds

7.4 General Assumptions

7.5 Profit and Loss Statements 

7.6 Cash Flow Analysis

7.7 Balance Sheet

7.8 General Assumptions

7.9 Business Ratios

Expanded Profit and Loss Statements

Expanded Cash Flow Analysis

Trading Business Plan Template

Written by Dave Lavinsky

Trading Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.

If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is a Trading Business Plan?

A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for a Trading Company

If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Trading Companies

With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.

Finish Your Business Plan Today!

How to write a business plan for a trading company.

If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.

Executive Summary

Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the trading industry.
• Discuss the type of trading business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail what type of trading business you are operating.

For example, you might specialize in one of the following types of trading businesses:

• Retail trading business: This type of business sells merchandise directly to consumers.
• Wholesale trading business: This type of business sells merchandise to other businesses.
• General merchandise trading business: This type of business sells a wide variety of products.
• Specialized trading business: This type of business sells one specific type of product.

In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the trading industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the trading industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

• How big is the trading industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

Finish Your Trading Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other trading businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

• What types of customers do they serve?
• What type of trading business are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you make it easier for customers to acquire your product or service?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.  

Management Team

To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.  

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.  

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.  

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:

• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.  

Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.  

Trading Business Plan Template FAQs

What is the easiest way to complete my trading business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your trading business plan.

How Do You Start a Trading Business?

Starting a trading business is easy with these 14 steps:

• Choose the Name for Your Trading Business
• Create Your Trading Business Plan (use a trading business plan template or a forex trading plan template)
• Choose the Legal Structure for Your Trading Business
• Secure Startup Funding for Trading Business (If Needed)
• Secure a Location for Your Business
• Register Your Trading Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Trading Business
• Buy or Lease the Right Trading Business Equipment
• Develop Your Trading Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Trading Business
• Open for Business

What is a Trading Business?

There are several types of trading businesses:

• Retail trading business- sells merchandise directly to consumers
• Wholesale trading business- sells merchandise to other businesses
• General merchandise trading business- sells a wide variety of products
• Specialized trading business- sells one specific type of product

Don’t you wish there was a faster, easier way to finish your Trading business plan?

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan advisors can give you a winning business plan.

Other Helpful Business Plan Articles & Templates

• Search Search Please fill out this field.
• Assets & Markets
• Commodities

How to Start a Commodity Brokerage Firm

Westend61 / Getty Images

Starting a commodity brokerage firm might seem like a lofty task, but knowing the proper steps and what's required before you embark on such a venture can save you a lot of time and headaches.

Commodity brokerage firms are known as "introducing brokers" (IB) in the futures sector. There are many IBs registered with the National Futures Association (NFA). Some firms may have only one person, while others have many people and branch offices. Chicago is the hub for commodity brokerage firms, while Florida, Texas, California and New York are other busy places for IBs.

Registration Requirements

To become an IB, the first thing you must do is sit for and pass the Series 3 Exam if you are not a current broker and registered as an IB with the NFA. There must be at least one associated person (AP, usually a broker) listed with the firm. If you plan on being a one-person entity, you must become an AP. There are costs you must pay to register, along with regulatory paperwork to complete.

One vital step in the process of opening a firm is going into an agreement with a futures commission merchant (FCM). There must be a signed agreement between an IB and an FCM before you can register and do business with the public. An FCM will execute and clear the trades, handle client funds, provide back-office support, and in many cases, guarantee your firm, which is why will be choosy when it comes to forming an agreement with any IB.

IB Business Plan

A business plan is crucial to any start-up firm. You will need to have an office opened and ready to conduct business. You must decide on how you plan on bringing clients on to earn enough money to sustain the business. Initial earnings provide a base to build upon. A plan to raise equity and pursue clients is the most vital aspect of starting your business. Some common routes are to pay for advertising, conduct seminars, and approach friends and family for business and support.

Before you land your first client, you need to be educated in trading in the commodity futures markets. Some brokers focus on one market or one sector of the market, but successful brokers can make trades in every market on the futures exchanges around the U.S.

Some clients make their own trading choices, while others will rely solely on your advice. The more skilled you become at commodities trading, the more likely you will retain clients and grow your brokerage. If you lose money trading commodities, and your clients rely on your advice, you will be fighting an uphill battle to succeed and might want to look for another venture.

To summarize, to open an IB firm, you will need to pass the Series 3 Exam and arrange for all proper registrations with the NFA. You will need to choose and agree to terms with an FCM for clearing trades and handling the accounting and client statements. You will need to prepare a clear business plan that includes projected costs and earnings. Spell out how you plan on opening new accounts and growing your firm. If you plan on making trading recommendations for your clients , make sure you have a solid trading plan and a good track record in trading before you venture into managing money for clients.

Final Thought on Starting Your Own IB Firm

Starting an IB firm can be a lucrative venture. Still, it takes years to learn the trading business and the ins and outs of each commodity futures contract listed on U.S. exchanges. At times, it is best to work with another IB with more experience. You may be able to work as an apprentice before starting out on your own. There is always a risk when you start a new venture; without it, there can be little reward. The best commodities traders know risk vs. reward better than many others because of the high volatility of the raw material markets. Starting an IB firm is the first risk of many that you will have to take. 

CME Group. " The Complete IB Handbook ," Page 3.

National Futures Association. " Proficiency Requirements ."

National Futures Association. " Registration Rules ," Rule 204.

National Futures Association. " Guaranteed IB Requirements ."

Markets Home

Market data home.

Real-time market data

Market Data on Google Analytics Hub

CME DATAMINE:

THE SOURCE FOR HISTORICAL DATA

Services Home

Clearing Advisories

Uncleared margin rules

Insights Home

Subscribe to Research

Get our latest economic research delivered to your email inbox.

The world's most valuable exchange brand

Education Home

Step Into Commodities: Trading Challenge

New to Futures?

Course Overview

"He who fails to plan is planning to fail" -Winston Churchill

Traders who win consistently treat trading as a business. While there is no guarantee that you will make money, developing a trading plan is crucial if you want to become consistently successful and thrive in the trading game. Every trader—no matter your experience—needs a plan.

Why are you here?

• You want to know what constitutes a trading plan
• You realize you need a trading plan
• You want to be successful at futures trading

You’re in the right place for any those objectives. At the end of this course, you’ll understand why you need a trading plan and how to build one to support your success as a futures trader.

What is a trading plan?

A trading plan is a business plan for your trading career. Like any business plan, a trading plan is a working document in which you make assumptions about projected costs, revenues, and business conditions. Some of your assumptions may be right, some will surely be wrong. You wouldn't start a business without a business plan, so why would you start trading without a trading plan?

The real value in writing a trading plan is that it forces you to think about every part of your trading business, including confronting your strengths and weaknesses, and formulating reasonable expectations.

Any solid trading plan consists of the following five components. There are no shortcuts to developing a trading plan that will support your objectives. Take the time now to think about each of these components thoroughly and you will thank yourself later.

• Methodology
• Risk Management
• Trading Strategies

Related Courses

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs).  Further information on each exchange's rules and product listings can be found by clicking on the links to CME , CBOT , NYMEX and COMEX .

© 2024 CME Group Inc. All rights reserved.

Disclaimer   |   Privacy Notice   |   Cookie Notice   |   Terms of Use   |   Data Terms of Use   |   Modern Slavery Act Transparency Statement   |  Report a Security Concern

Friday, February 16, 2024

Essential steps to launching a commodity brokerage business, table of contents.

• Understanding the Commodity Market
• Developing a Business Plan
• Obtaining Necessary Licenses and Permits
• Setting Up a Brokerage Office
• Hiring Staff and Building a Team
• Building Relationships with Clients and Suppliers
• Marketing and Promoting Your Business

1. Understanding the Commodity Market

Before starting a commodity brokerage business, it's crucial to have a solid understanding of how the commodity market operates. Research different commodities, market trends, and trading strategies to be successful in this industry.

2. Developing a Business Plan

Create a detailed business plan that outlines your goals, target market, pricing strategy, and financial projections. A well-thought-out business plan will help guide your decisions and attract investors if needed.

Starting a commodity brokerage business requires careful planning and preparation. A well-thought-out business plan can help guide you through the process and increase your chances of success. Here are some key steps to consider when developing a business plan for your commodity brokerage business:

1. Define Your Business Model

Before you can start trading commodities, you need to determine your business model. Will you focus on a specific type of commodity or offer a wide range of options to your clients? Will you provide full-service brokerage services or specialize in online trading? Understanding your business model will help you identify your target market and set your business apart from the competition.

2. Conduct Market Research

Research is key to understanding the commodity market and identifying potential opportunities. Take the time to study industry trends, competitor analysis, and customer preferences. This information will help you tailor your services to meet the needs of your target market and develop a competitive strategy.

3. Develop a Marketing Plan

Once you have a clear understanding of your target market and competition, you can start developing a marketing plan. Consider how you will reach potential clients, whether through digital marketing, networking events, or partnerships with other businesses. Your marketing plan should outline your unique selling propositions and strategies for attracting and retaining clients.

4. Establish Your Operations

As a commodity brokerage business, you will need to establish operational processes to manage trades, handle client inquiries, and comply with regulatory requirements. Consider how you will handle account management, risk management, and compliance to ensure smooth operations and client satisfaction.

5. Set Financial Goals and Budgets

Finally, it's essential to set financial goals and budgets to guide your business growth. Consider how much capital you need to start and run your business, as well as your revenue targets and profitability goals. Regularly monitor your financial performance and adjust your strategies as needed to ensure long-term success.

By following these steps and developing a comprehensive business plan, you can increase your chances of starting a successful commodity brokerage business. Good luck!

3. Obtaining Necessary Licenses and Permits

Commodity brokerage businesses require specific licenses and permits to operate legally. Research the requirements in your area and obtain the necessary documentation to avoid legal issues.

4. Setting Up a Brokerage Office

Choose a suitable location for your brokerage office and set up the necessary infrastructure, including trading platforms and communication systems. Make sure your office meets all regulatory requirements and is conducive to conducting business efficiently.

5. Hiring Staff and Building a Team

Recruit experienced brokers, analysts, and support staff to build a competent team that can provide exceptional service to your clients. Training and development programs can help employees stay updated on market trends and regulations.

6. Building Relationships with Clients and Suppliers

Networking is key to the success of a commodity brokerage business. Build strong relationships with clients and suppliers to expand your network and attract new business opportunities. Provide excellent customer service to retain existing clients and attract referrals.

7. Marketing and Promoting Your Business

Develop a marketing strategy to promote your commodity brokerage business and attract new clients. Utilize online and offline channels, such as social media, industry events, and advertising, to raise awareness about your services and expertise in the market.

Key Takeaways

• Understand the commodity market and trading strategies
• Develop a comprehensive business plan
• Obtain necessary licenses and permits
• Set up a brokerage office with the right infrastructure
• Build a competent team and invest in employee training
• Focus on building relationships with clients and suppliers
• Implement a strategic marketing plan to promote your business

Frequently Asked Questions

No comments:

Post a comment.

• The Commodity Trading Game Plan
• learn to trade futures
• free trading education
• futures trading strategies
• stop loss order
• trading game plan
• commodity risk management

Article Index

• Timing is Everything in Commodity Trading
• Options, Futures, or Both?
• Commodity Trading Risk Management
• Option Selling Risk Management
• 10% Rule in Futures Trading
• Position Sizing and Stop Loss Orders
• The Bottom Line

A New Look at an Old Futures Trading Topic

There are an unlimited number of ways to skin a cat, and trading is no different. Despite your futures trading strategy, risk tolerance or trading capital, having a plan is one of the most important components of achieving success in these treacherous commodity markets. However, we believe that the most important characteristic of a profitable futures and options trader is the ability to adapt to ever-changing market conditions. Assuming this, it seems logical to infer that a commodity trading plan should be established; nevertheless, just as rules are meant to be broken, futures trading plans should be flexible to accommodate altering environments and new events. The premise of properly planning a commodity trade is similar in nature to a business plan. It is a relatively detailed outline of the structure of the futures and options speculation and the contingency plan, or plans, should the market go against the trade. Once again, I believe that trading plans should not necessarily be set in stone; behaving as if they are could lead to financial peril. There are two primary components of a commodity trading plan: price prediction and risk management. Price prediction is simply the method used to signal the direction and timing of trade execution. This may involve fundamental or technical analysis, or both. Risk management specifies when to cut losses, when and how to adjust a position, or better yet when to take profits.

Commodity Futures Price Speculation (Hopefully Prediction)

The only way to make profitable futures and options trades is to buy low and sell high. This is true whether you are trading derivatives, or baseball cards. Although it is a simple concept in theory, in practice, it is much more difficult to implement than one may think. In order to successfully buy something at a low price and sell it at a higher price, the trader must first be accurate in his speculation.

Determining an opinion on where commodity market prices could, or should, go is only half the battle. Once you have done your homework in both fundamental and technical analysis, you must be able to construct a prospective commodity trade that will be profitable if you are correct and hopefully relatively painless if you are wrong.

Commodity Trading Books by Carley Garner

What people are saying about our futures and options trading books, decarley trading youtube feed, follow carley on twitter, commodity futures and options site tags.

• Business Plan for Investors

Bank/SBA Business Plan

• Operational/Strategic Planning Services
• L1 Visa Business Plan
• E1 Treaty Trader Visa Business Plan
• E2 Treaty Investor Visa Business Plan
• EB-1 Business Plan
• EB-2 NIW Business Plan
• EB-5 Business Plan
• Innovator Founder Visa Business Plan
• Start-Up Visa Business Plan
• Expansion Worker Visa Business Plan
• Manitoba MPNP Visa Business Plan
• Nova Scotia NSNP Visa Business Plan
• British Columbia BC PNP Visa Business Plan
• Self-Employed Visa Business Plan
• OINP Entrepreneur Stream Business Plan
• LMIA Owner Operator Business Plan
• ICT Work Permit Business Plan
• LMIA Mobility Program – C11 Entrepreneur Business Plan
• USMCA (ex-NAFTA) Business Plan
• Franchise Business Plan
• Landlord business plan
• Nonprofit Start-Up Business Plan
• USDA Business Plan
• Cannabis business plan
• Ecommerce business plan
• Online boutique business plan
• Mobile application business plan
• Daycare business plan
• Restaurant business plan
• Food delivery business plan
• Real estate business plan
• Business Continuity Plan
• Pitch Deck Consulting Services
• Financial Due Diligence Services
• ICO whitepaper
• ICO consulting services
• Confidential Information Memorandum
• Private Placement Memorandum
• Feasibility study
• Fractional CFO
• How it works
• Business Plan Examples

Trading Business Plan

MAR.12, 2024

According to a report, 13% of day traders maintain consistent profitability over six months, and a mere 1% succeed over five years. This is primarily due to inadequate planning and undercapitalization. A well-crafted trading business plan can help you avoid these pitfalls, and this article will guide you.

In this article, you’ll learn:

• The current trends and growth forecasts in the stock trading industry
• A breakdown of the costs involved in starting a trading company
• The key components of a trading business plan (with a trading business plan example)
• Strategies for securing funding and overcoming the barriers to entry

By the end of this article, you’ll understand what it takes to create a business plan for an investment company , positioning your trading business for long-term success in this lucrative but highly competitive industry.

Pros and Cons of Trading Company

Let’s explore the pros and cons associated with running a trading company before diving into the specifics of a trading site business plan. Understanding them will help you make informed decisions:

• Potential for significant profits.
• Flexibility in terms of time and location.
• Opportunity for continuous learning and skill development.
• High risk due to market volatility.
• Emotional stress and psychological pressure.
• Requirement for constant vigilance and discipline.

Trading Industry Trends

Industry size and growth forecast.

According to a report , the global stock trading and investing applications market size was at around $37.27 billion in 2022 and projects to grow at a CAGR of 18.3% from 2023 to 2030 (Source: Grand View Research). The following factors drive this growth:

• Increasing internet penetration
• Rising disposable income
• Growing awareness of investment opportunities.

(Image Source: Grand View Research)

The Services

As per our private equity firm business plan , a stock trading business offers various services, including:

• Facilitating Trades on behalf of clients
• Algorithmic trading services to automatically execute trades
• Market Insights (research reports, market analysis, and economic forecasts)
• Technical and Fundamental Analysis (price charts, historical data, and company fundamentals)
• Investment Recommendations
• Seminars and Webinars
• Online Courses
• Demo Accounts
• Portfolio Diversification
• Stop-Loss Orders
• Hedging Strategies
• Direct Market Access (DMA)
• Global Market Access
• Trading Platforms
• Mobile Apps
• High-Frequency Trading (HFT)
• Legal and Compliance Services
• Educate clients about Risk Disclosure

How Much Does It Cost to Start a Trading Company

According to Starter Story, you can expect to spend an average of $12,272 for a stock trading business. Some key startup costs include:

How Much Can You Earn from a Trading Business?

Earnings in the trading business can vary significantly and depend heavily on:

• Trading strategy and approach
• Market conditions and volatility
• Risk management techniques
• Capital allocation and leverage

While specific income figures are difficult to predict due to these factors. However, here are some statistics showing the earning potential of a stock trading business:

• According to Investopedia, only around 5% to 20% of day traders consistently make money.
• According to Indeed Salaries, the average base salary for a stock trader in the U.S. is $80,086 per year.
• 72% of day traders ended the year with financial losses, according to FINRA.
• Among proprietary traders, only 16% were profitable, with just 3% earning over $50,000. (Source: Quantified Strategies)

What Barriers to Entry Are There to Start a Trading Company

Barriers to entry into the stock trading business include:

• Regulatory Requirements: Obtaining necessary licenses and registrations from governing bodies like the SEC and FINRA is a complex and time-consuming process.
• Capital Requirements: Trading activities require significant capital to manage risks and leverage opportunities, which can be a substantial challenge for new or small firms.
• Technological Expertise: Developing or acquiring sophisticated trading platforms, algorithms, and data analysis tools is costly and requires specialized expertise.
• Market Knowledge and Experience: Gaining in-depth knowledge and practical experience in the complex and dynamic financial markets takes years of dedicated study.
• Competitive Landscape: Breaking into the highly competitive trading industry dominated by established firms and well-funded proprietary trading desks is challenging for new entrants.

You can overcome these barriers by developing unique strategies, leveraging innovative technologies, and offering competitive and specialized services to differentiate yourself in the market. Do check our financial advisor business plan to learn more.

Creating a Trading Business Plan

A well-researched stock trading business plan is crucial to start a trading business. A general trading company business plan is a comprehensive document that defines your goals, strategies, and the steps needed to achieve them. It helps you stay organized and focused and increases your chances of securing funding if you plan to seek investors or loans.

Steps to Write a Trading Business Plan

You can use a business plan template for a trading company or follow these steps to prepare a business plan for a personal trading business:

Step 1: Define Your Goals and Investment Objectives

Step 2: Conduct Market Research

Step 3: Develop Your Trading Strategy

Step 4: Establish Your Business Structure

Step 5: Develop a Financial Plan

Step 6: Outline Your Operational Procedures

Step 7: Create a Marketing and Growth Strategy

Step 8: Implement Risk Management

Step 9: Create an Exit Strategy

What to Include in Your Trading Business Plan

Executive summary, company overview.

• Market Analysis
• Trading Strategy and Risk Management
• Operations and Technology
• Financial Projections
• Management and Organization
• Appendices (e.g., research, charts, legal documents)

Here’s an online trading business plan sample of ABC Trading:

ABC Trading, a recently established stock trading firm, provides online trading services to individuals and institutional investors. Key highlights of our business include:

• Vision – Becoming a leading online trading platform with a wide range of trading products and services.
• Values – Our core focus is innovation, excellence, integrity, and customer satisfaction.
• Target market – Tech-savvy and risk-tolerant investors looking for alternative ways to invest their money and diversify their portfolios.
• Revenue model – Commissions and fees for each trade, as well as subscription fees for premium features and services.
• Financial goal – Break even in the second year of operation and generate a net profit of $1.2 million in the third year.

ABC Trading is seeking $500,000 seed funding to launch its platform, acquire customers, and expand its team.

Company Name: ABC Trading

Founding Date: January 2024

Location: Delaware, USA

Registration: Limited Liability Company (LLC) in the state of New York

Regulated By: Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)

Our team comprises seasoned professionals with diverse finance, mathematics, computer science, and engineering backgrounds.

Marketing Plan

Marketing Strategy: We aim to leverage online channels, such as social media, blogs, podcasts, webinars, and email newsletters, to create awareness, generate leads, and convert prospects into customers.

Marketing Objectives:

• Reach 100,000 potential customers in the first year of operation
• Achieve a 10% conversion rate from leads to customers
• Retain 80% of customers in the first year and increase customer lifetime value by 20% in the second year

The customer profile of ABC Trading includes the following characteristics:

• Age: 25-65 years old
• Gender: Male and female
• Income: Above $100,000 per year
• Education: Bachelor’s degree or higher
• Occupation: Professionals, entrepreneurs, executives, or retirees
• Location: US or international
• Trading experience: Intermediate to advanced
• Trading goals: Income generation, capital appreciation, risk diversification, or portfolio optimization
• Trading preferences: Stocks, options, or both
• Trading style: Technical, trend following, or volatility trading
• Trading frequency: Daily, weekly, or monthly
• Trading risk: Low, medium, or high

Marketing Tactics:

• Create and distribute engaging and informative content on social media platforms
• Offer free trials, discounts, referrals, and loyalty programs
• Collect and analyze customer feedback and data to improve and personalize the customer experience
• Partner with influencers, experts, and media outlets in the trading and finance niche

Marketing Budget:

We will allocate $10,000 for our marketing campaign, which we will use for the following purposes:

Operations Plan

ABC Trading’s operations plan ensures the smooth and efficient functioning of the company’s platform and services and compliance with the relevant laws and regulations.

Operation Objectives:

• Maintain a 99% uptime and availability of the company’s platform and services
• Ensure the security and privacy of the company’s and customers’ data and funds
• Provide timely and professional customer support and service

Operation Tactics:

• Use cloud-based servers and services
• Implement encryption, authentication, and backup systems
• Hire and train qualified and experienced customer service representatives and technicians
• Monitor and update the company’s platform and services regularly
• Follow the best practices and standards of the industry and adhere to the applicable laws and regulations

Operation Standards:

• Test and verify the quality and reliability of the company’s platform and services before launching and after updating
• Document and report any issues, errors, or incidents that occur on the company’s platform or services
• Resolve any customer complaints or disputes in a timely and fair manner
• Maintain a record of the company’s operations activities and performance

Financial Plan

ABC Trading’s financial plan is to provide a realistic and detailed projection of the company’s income, expenses, and cash flow for the next three years, as well as the key financial indicators and assumptions that support the projection.

Financial Objectives:

• Achieve a positive cash flow in the second year of operation.
• Reach a break-even point in the second year of operation.
• Generate a net profit of $1.2 million in the third year of operation.
• Maintain a healthy financial ratio of current assets to current liabilities of at least 2:1.

Financial Assumptions:

• Launch its platform and services in the first quarter of 2024
• Acquire 10,000 customers in the first year, 20,000 customers in the second year, and 30,000 customers in the third year
• Average revenue per customer will be $50 per month, based on the average number and size of trades and the subscription fees
• Average operating expense per customer will be $10 per month, based on the average cost of salaries, rent, utilities, marketing, and legal fees
• Pay a 25% tax rate on its net income
• Reinvest 50% of its net income into the company’s growth and development

Projected Income Statement:

Projected Cash Flow Statement

Projected Balance Sheet

Fund a Trading Company

To successfully establish and operate a trading company, raising funds to finance daily operations and business expansion is crucial. There are different ways with their advantages and disadvantages:

1. Self-funding (Bootstrapping)

Self-funding, also known as bootstrapping, is when the founder or owner of the trading company uses their own personal savings, family business ideas , assets, or income to finance the business. This is the most common and simplest way to fund a trading company, especially in the early stages.

• Complete ownership and control
• Flexibility in decision-making
• Potential for higher long-term returns
• Limited access to capital
• Personal financial risk
• Slower growth potential

2. Debt Financing

Debt financing involves borrowing money from lenders, such as banks, credit unions, or microfinance institutions, to fund the trading company’s operations. The borrowed funds must be repaid with interest over a specified period.

• Retain ownership and control
• Potential tax benefits from interest deductions
• Disciplined approach due to repayment obligations
• Debt burden and interest payments
• Collateral requirements and personal guarantees
• Difficulty in securing financing for startups

3. Angel Investors

Angel investors are wealthy individuals who invest their own money into early-stage or high-potential trading companies in exchange for equity or convertible debt. Angel investors typically provide smaller funding than venture capitalists and offer mentorship, guidance, and access to their network.

• Access to capital and industry expertise
• Potential for additional mentorship and guidance
• Lower risk compared to traditional investors
• Dilution of ownership and control
• Potential for conflicting visions and expectations
• Limited resources compared to larger investors

4. Venture Capital (VC) Funding

Venture capital firms are professional investment firms that provide capital to high-growth startups in exchange for equity ownership. They typically invest large sums of money and are active in the company’s management and strategic direction.

• Access to substantial capital for growth
• Expertise and industry connections from the VC firm
• Validation and credibility for the business
• Significant dilution of ownership and control
• Intense pressure for rapid growth and return on investment

Depending on your business model, goals, and needs, you may also consider other options, such as grants, subsidies, partnerships, etc. Ensure to check for relevant documents, like the hedge fund private placement memorandum . The best way to fund your trading company is the one that suits your situation and preferences.

OGSCapital: Your Strategic Partner for Business Success

At OGSCapital, we specialize in professional business plans that empower startups, established companies, and visionary entrepreneurs. With over 15 years of experience, our seasoned team combines financial acumen, industry insights, and strategic thinking to craft comprehensive plans tailored to your unique vision. Whether you’re seeking funding, launching a new venture, or optimizing your existing business, we’ve got you covered.

If you have any further questions regarding how to write a business plan for your trading business, feel free to contact us. Our team at OGSCapital is here to support you on your entrepreneurial journey. You can also check our hedge fund business plan sample here.

Download Trading Business Plan Template in PDF

Frequently Asked Questions

What does a trading business include?

A trading business involves trading stocks and other financial instruments under a legal business structure. It includes:

• Market analysis
• Trading strategy
• Risk management

How does a trading company work?

A stock trading company facilitates the buying and selling of stocks (shares) on behalf of investors. These companies operate within stock exchanges, executing trades based on specific trading strategies.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

Add comment

E-mail is already registered on the site. Please use the Login form or enter another .

You entered an incorrect username or password

Comments (0)

mentioned in the press:

Search the site:

OGScapital website is not supported for your current browser. Please use:

The future of commodity trading

The commodity trading industry has enjoyed an upward trend over the past five years. While all industries go through multiyear cycles of peaks and troughs, the industry’s prospects look excellent for the years ahead.

Indeed, commodity trading is on the cusp of the next normal. The energy transition now under way is an economic and physical transformation that cuts across and integrates the various global food, energy, and materials systems. From a commodity trading standpoint, this transformation will increase structural volatility, disrupt trade flows to open new arbitrages, redefine what it means to be a commodity, and fundamentally alter commercial relationships. All these developments will create unique opportunities and challenges for new and incumbent players alike.

In this article, we explore the trends underpinning commodity trading value pools, discuss five success factors and their potential implementation, and present our perspective on the three business models that could develop over time.

What is the status of the industry?

Commodity trading value pools have grown substantially, almost doubling from $27 billion in 2018 to an estimated $52 billion of EBIT in 2021 (Exhibit 1). The majority of this growth was fueled by EBIT from oil trading, which were estimated to have increased by more than 90 percent to $18 billion during this period. Power and gas trading was just behind, rising from $7 billion to $13 billion. These value pools maintained their upward trajectory in 2022. The market will likely attract new entrants that enhance competition, and our analysis suggests that its overall value will continue to grow.

We identified four developments that contributed to this rapid growth and will have an impact in the years to come.

The energy transition is structurally resetting volatility and the value of flexibility across assets and demand

While significant economic and environmental benefits could be captured from decarbonization, the inconsistency of incentives, bottlenecks in the value chain, and current geopolitical turbulence have clouded the supply and demand picture. Annual investments in traditional hydrocarbons have dropped by 50 percent since 2013, but the level of funds committed to the energy transition—approximately $700 billion in 2021, about one-third the $2 trillion needed in 2022—will likely not be sufficient to prevent the emergence of sustained bottlenecks.

Without significantly building out the underlying supply chain, our analysis projects potential supply imbalances (Exhibit 2). For example, lithium and nickel have a high probability of supply constraints by 2030, particularly in the Further Acceleration and Achieved Commitments scenarios discussed in McKinsey’s Global Energy Perspective 2022 . 1 “ Global Energy Perspective 2022 ,” McKinsey, April 26, 2022. Similarly, in Germany and Italy alone, the land space currently occupied by renewable-energy sources (RES) would need to double by 2030. 2 Based on data from the Global Wind Atlas and on McKinsey analysis. These supply gaps are also being observed outside the power space: continued feedstock supply constraints—combined with increasing demand from refineries on the back of regulations favorable to second-generation biofuel feedstocks—have increased used cooking oil (UCO) prices by 90 percent in the past 18 months. 3 Based on data from Argus Media and on McKinsey analysis.

The increased susceptibility of markets to both short- and long-term volatility and boom-and-bust cycles will likely increase the value of maintaining prompt inventory to deploy in response to a market dislocation. Over the past two years, markets have experienced historic spikes caused by COVID-19, severe weather, geopolitical events, and macroeconomic uncertainty. These fluctuations have been most apparent in the energy sector, but other commodities have also been affected. For example, because producers of agricultural goods and metals use energy as an input, volatile prices have upended the economics of production and led to shutdowns. The historical volatility of US natural-gas prices (as measured by Henry Hub natural-gas spot prices) jumped from a low of 25 percent in the third quarter of 2021 to 179 percent just six months later. European gas prices (as measured by Dutch title transfer facility prices) increased from less than €10 per megawatt-hour (MWh) in the second quarter of 2020 to more than €330 per MWh in the second quarter of 2022. This spike has led fertilizer companies to halt Europe-based production and exports. From a commodity trader’s perspective, profitability is determined by a combination of price levels and price volatility (Exhibit 3).

Given these expectations of higher volatility, flexible capacity to respond to changing market conditions will become more critical from both balancing and economic standpoints. Our analysis indicates that achieving a global electrical supply based on 70 percent intermittent penetration in 2050 would require an embedded flexible capacity of 2.5 times at 25 percent penetration. Players could capture considerable economic value by optimizing flexible assets, which could account for more than 60 percent of the overall commodity trading value pool.

However, estimating the value of this flexibility based on forecasts is challenging—especially when physical assets are subject to operational, regulatory, or environmental constraints. For instance, most business cases for flexible assets do not factor in the occurrence of extreme market scenarios that are likely to occur over their 30-year lifespan, thereby underestimating the potential economic rent.

Moreover, the energy transition has priced environmental impact into the supply curve, which will have implications for market volatility. A reordering of asset values and cross-commodity relationships would more strongly intertwine the price volatility of traditional commodities with that of new green commodities—and vice versa.

Given these expectations of higher volatility, flexible capacity to respond to changing market conditions will become more critical from both balancing and economic standpoints.

Trade flow disruptions and potentially increasing regionalization

The flow of global commodities remains vulnerable to potential disruption from one-off events.

The COVID-19 pandemic is a case in point: the precipitous drop in demand for oil and the corresponding decline in seaborne crude-oil-pricing benchmarks, such as Dubai Fateh, saw charter rates for very large crude carriers (VLCCs) trade at $150,000 to $200,000 a day in the first quarter and second quarter of 2020, with tankers anchored off the coasts of major import centers to provide floating storage.

Recent events have kick-started a reordering of global flows, and the geographical distribution of relevant and competitive assets makes a reversion to pre-2021 levels unlikely in the foreseeable future. In energy, the reduction in Russian supplies to Europe and its allies has led the European Union to rely on imports sourced or rerouted from longer distances, such as Latin America, the Middle East, the United States, and West Africa. Conversely, Russia is exporting higher volumes farther afield, including to China and India. As a result, ships will likely spend more time at sea, and freight optimization could have a greater impact on margins. For example, shipping costs have risen dramatically since the first quarter of 2021: Baltic dirty, Baltic clean, and liquefied natural gas (LNG) tanker rates have increased by approximately 228 percent, 195 percent, and 266 percent, respectively (Exhibit 4).

For agricultural commodities, the invasion of Ukraine has severely disrupted exports from the Black Sea, a region responsible for large shares of the global trade in wheat (25 to 30 percent), corn (around 20 percent), and sunflower oil (more than 50 percent). This disruption is having knock-on effects on other agricultural exporters that are already affected by drought and price inflation, leading them to limit flows to maintain food security. The resulting sustained volatility in commodity prices has enabled traders with access to physical alternatives to capture significant value—for example, by rerouting flows, optimizing freight, leveraging storage assets, and blending commodities to customer specifications.

More severe trade flow disruption scenarios could occur, including the potential formation of trade blocs, with the impact felt differently by each commodity class. In one scenario, for LNG, Russian exports could be wholly excluded from OECD markets, shifting instead to China, India, and Türkiye (Exhibit 5). To plug the supply gap, Australian and North American supplies would be redirected to Europe, even though some national oil companies (NOCs) have maintained that it is their obligation to deliver on supply commitments. Europe could seek to severely limit demand because projected global liquefaction capacity is insufficient to completely replace Russian volumes. Despite this “bloc building,” energy flows will adjust to balance the system, and these flows will remain strongly interlinked via fundamental pricing relationships. In the case of metals, however, it is possible that geopolitical factors could override economic relationships and significantly regionalize trade flows (for example, in the battery value chain).

This reliance on longer distances and rerouting will further constrain the shipping market. Furthermore, the changes in trade flows will require traders to reevaluate their downstream exposure—a particularly relevant consideration for those with European refining assets as the continent increases imports of diesel. Other traders would have to determine how to meet their customer commitments.

Over the long term, the energy transition could contribute to more regionalization. As the world moves to electrification and alternative fuels, underlying cost structures could create incentives for more local and regional supply networks and in turn reduce traditional large-volume, long-distance commodity flows for oil, coal, and LNG. Even with a potential move toward regionalization, global trade flows would still likely be required to balance energy systems in the foreseeable future. One example is hydrogen: a number of high-demand countries could rely on their own hydrogen production and consumption because transportation and the avoidance of converting and reconverting derivatives can be a significant contributor to overall unit economics (Exhibit 6).

Financing as a bottleneck

The volatility of spiking commodity price levels has significantly tightened collateral requirements and increased the size and frequency of margin calls. Working capital requirements could rise by 1.5 to 3.0 times the current levels depending on the commodity. In power and gas, for example, price volatility has limited the scope of positions for market participants. According to estimates, energy margin calls could total $1.5 trillion.

In other commodities, the stance of central banks has resulted in a rapid increase in the cost of trade financing for various commodity traders and created a massive challenge for players, especially small and medium-size commodity traders. In the past six months, financial intermediaries have significantly reduced credit to Asia-based metal traders, which have responded by restricting trading activities, exploring selective asset sales, and shoring up balance sheets to maintain access to working capital and to avoid financial distress. Traders with large portfolios and healthy balance sheets have taken advantage of these restrictions to increase their margins considerably. The added working capital requirements combined with the longer shipping times could further increase the competitive advantage of large traders (Exhibit 7). However, it also creates a potential opportunity for larger traders to emerge as “financiers of last resort” for smaller players. For instance, in energy transition commodities such as copper, merchant traders have engaged junior miners on long-term origination contracts linked to prefinancing.

Increase in liquidity and financially tradable products

In the past five to ten years, commodity markets have experienced a dramatic rise in the overall level of liquidity. While the past two years saw events such as the drop in liquidity in European power and gas trading, any repercussions are unlikely to affect the overall trend. One major factor has been large producers that moved from direct-to-consumer (D2C) sales into trading to capture more value from their global logistics, systems, and inventories. Similarly, some large customers could shift away from long-term contracts (LTCs) to capture benefits from the spot market. For example, Middle Eastern NOCs have increased margins by bringing their product into the traded markets. Commodity players have also enhanced their participation in one another’s value chains, such as energy traders taking part in the value chains of agricultural traders and vice versa.

Recent market developments include increased price transparency, greater access to structured and unstructured data (such as satellite imagery and infrared detection), contract standardization, new exchanges and platforms, and regulations. The resulting lower barriers created a virtuous circle, with higher market participation, transaction volumes and costs, and speed to market. An example is the LNG market, in which spot transactions account for more than 38 percent of annual volumes today (approximately 140 million metric tons) compared with 27 percent (approximately 60 million metric tons) in 2010. The monthly Japan/Korea Marker (JKM) 4 JKM is the price index for LNG delivered to Japan and South Korea. futures open interest on the Intercontinental Exchange (ICE) has grown from 1,500 lots six years ago to more than 120,000 lots today, reflecting the increased liquidity of benchmark indices. And while the recent volatility has created incentives for customers to revisit LTCs, the growth in overall volumes will likely ensure that absolute short-term volumes increase as well. In iron ore, for example, the market is developing forward curves to help better manage flat-price and basis risks; the open interest in Singapore Exchange iron ore futures expiring up to three months out has more than doubled in the past five years. 5 Based on data from S&P Global Platts. The net effect of these changes: the addressable market for all commodity flows continues to rise.

Five factors to achieve success in the coming years

To capture opportunities, commodity traders will likely need to invest in new capabilities. Our analysis has identified five factors that could be critical to success in the years ahead.

1. Prioritize customer centricity as the energy transition reshapes commodities

The energy transition is redefining the commodity asset class with the arrival of new offerings being differentiated by geography, production methods, regulatory treatment, and environmental impact—and therefore being valued differently by customers. The development path of these new commodities will be determined by customer needs, willingness to pay, and the improving economics of new technologies that will enable differentiation for each commodity to a varying degree. Traders that have access to customer short positions and the accompanying customer-backed perspective could capture an advantage in originating and tailoring high-quality products (a clear differentiator in the metals space); anticipating and locking in demand; gaining insight into product differentials (specifically green-product price discovery); understanding value chain bottlenecks; and strategically shaping customer behavior.

Customer centricity is particularly relevant for new commodities such as sustainable aviation fuel, for which the lack of a wholesale market in the near term will make the D2C model (in which a single customer or a few large ones purchase a producer’s whole supply) the only model able to off-load exposure. Since customer centricity can be successfully developed independent of asset intensity, companies that have not historically focused on end customers would have to adopt a significantly different operating model, culture, and set of capabilities. Failure to adapt could leave margins for big commodity trading players, severely undermine the economic viability of asset investments, or both. Players must pay attention to their counterparty risk because larger customer exposures could create risks.

For example, demand for corporate power purchase agreements (PPAs), which has grown considerably in the past five years, will be spurred by the evolution of customer groups whose decarbonization needs cannot be met solely by pay-as-produced PPAs. 6 A path towards full grid decarbonization with 24/7 clean Power Purchase Agreements , LDES Council, May 2022. This trend has created a need for 24/7 PPAs that can contractually specify the level of clean supply–demand matching, time and geographical granularity, the addition of renewables, and clean dispatchable capacity based on customer needs.

2. Embrace the industry’s shift toward shortterm markets, especially on new commodities

The current market environment has heightened how customers perceive risk. Many are pursuing LTCs. Even though these products don’t reduce risk significantly, they enable customers to lock in a price mechanism and secure supply. Producers will revert to short-term markets because their shareholders will not accept the negative impact from the loss of flexibility, the neglect of arbitrage opportunities created by short-term volatility, and the high costs of hedging illiquid long-term positions. Conversely, the high premiums commanded by producers and potential large mark-to-market write-downs will also steer customers back to short-term markets. That said, no model can accommodate all customer needs, and regional or commodity-specific nuances could slow the move to short-term markets. The LNG market is an example of regional nuances: European buyers are leaning toward short-term contracts, while those in Asia and Latin America are likely to prefer LTCs with some degree of flexibility. Moreover, producers may still rely on LTCs to make projects bankable and take final investment decisions (FIDs). A potential outcome could be a world in which short-term volumes remain robust and price indexes are recalibrated to more liquid and stable benchmarks.

With respect to new commodities, producers will likely need to maintain the ability to ramp up and down—a responsiveness that will be challenging if they are constrained by offtake agreements. For example, our evaluation of Power-to-X (for example, Power-to-Hydrogen) projects finds that fully merchant projects can offer a superior risk/return trade-off compared with fully contracted ones. The better result, which derives from the ability to switch between producing and selling power and hydrogen based on short-term market conditions, will, over time, encourage commodity players to return to short-term markets.

Therefore, to avoid impeding the energy transition, producers of new commodities could likely move faster to short-term markets compared with those of commodities such as LNG and power. The large, global players are well positioned to benefit from this trend, given that their diversified portfolios and balance sheets enable them to take on the long-term merchant risk associated with asset investments while participating in the short-term markets.

3. Invest in decarbonization as an asset class to harness the ‘green premium’ as a potential source of first-mover advantage

End customers that want to mitigate the environmental impact of their consumption could increasingly demand green products in various forms. Commodity players with an understanding of the green premium will be able to unlock arbitrage opportunities—for example, through adjustments to their product blending and logistics processes or through cost optimization. The green premium’s evolution and the opportunities it creates for players will be closely linked to how voluntary and compliance carbon markets evolve in the future. Although these markets will expand massively (coverage is expected to more than double to 52 percent of global emissions by 2030), they will remain fragmented, illiquid, and subject to moments of significant dislocation due to regulations and the technological and economic drivers of decarbonization. 7 Based on Vivid Economics’ VCM Model.

A detailed quantitative, transaction-linked understanding would enable better-informed investment decisions and a potential avenue to access competitive green-financing options. To capture these advantages and opportunities, players must accurately track the carbon exposure of their products and cargoes and connect it with their customers’ willingness to pay while also setting up the necessary physical processes and accounting protocols for compliance. In the future, this tracking could extend past carbon to a holistic view of multiple environmental, social, and governance (ESG) elements. First movers could also accumulate strategic volumes and scale to benefit from the price differentials that accompany the rapid expansion and uptake of green commodities and carbon markets. On a related note, as the green premium becomes more mainstream, it will provide traction to technologies (such as commodity tokenization) that enable more bespoke price discovery mechanisms and low-latency traceability.

For example, metals with different ESG and carbon footprint ratings, such as zero-carbon steel, have become considerably more popular. In the past 12 to 18 months, nine colors of hydrogen and ammonia have been introduced to the market, each with a differentiated production methodology. 8 “The hydrogen color spectrum,” National Grid, accessed January 25, 2023.

4. Rapidly ramp up trading capabilities, because scale is a critical factor

The combination of growing value pools and lower barriers to entry may lead existing players to pursue growth—particularly incumbent asset players that have yet to unlock their full potential. New entrants may also have added incentives to enter this space. While the competitive landscape can initially expand, scale could still be critical for success (especially at times of higher volatility and rapidly changing trade flows) for three reasons: it enables players to achieve better risk-adjusted returns (especially for new energies that need to be kick-started by large illiquid deals), to ensure global access to customers and optionality, and to secure more competitive financing.

Accordingly, scale will spur further industry consolidation. Large merchant traders and asset players will grow organically by taking away “flows” from smaller players and by growing in new asset classes. Asset players would increasingly be expected to acquire smaller players and, in the process, provide the risk capital and flows to supercharge growth. Meanwhile, smaller players would focus on “niches” that are less capital-intensive or more local. However, preparing for this phase of consolidation requires a rapid buildup of “smart scale”—in essence, focusing on scaling up a portfolio of alternatives in positions and products. In some cases, traders would have to make bold moves beyond the typical trading mandates. This pursuit of scale also has implications for business models: moving from a capital expenditure–based model to a more operating expenditure–based one would force traders to critically assess the trade-off between making one’s system more flexible and adding operating expenditures.

5. Ensure that the trading platform and operating model balance efficiency and agility to enable growth, especially in light of talent shortages

A number of players have been ramping up their trading businesses to capture their share of the growth in commodity trading, but their ambitions have been potentially limited by their trading platforms and operating models. This is mainly due to three reasons:

• Trading platforms are not currently designed to capitalize on economies of scale. To grow, players need to increase their head counts at a time when talent is at a premium.
• Growth from increased customer centricity can be constrained by the platform and the operating model’s inability to capture, process, and report on new customized and complex transactions.
• The increased use of more granular data (both structured and unstructured) in trading analytics has generated margin growth. However, poor data governance and outdated IT infrastructure can hinder players from capturing this growth and impede their attraction of commercial talent with experience in data-driven methodologies.

To develop a trading platform and an operating model that facilitate growth, players must first define their strategic ambitions and then make targeted investments to achieve the right mix of efficiency and agility to enable data-driven trading. For example, if a player’s strategic focus is on short-term trading, efficiency is critical. For the origination of customized and complex PPAs, a trading platform must be agile. And in prop trading, the increased integration of data into decision making will require both solid data governance and a best-in-class tech stack.

A successful trading platform requires several factors: an organization and operating model that incorporates agile principles where needed; the migration of technology applications to the cloud to unlock efficiency and reduce demand for talent; and a competitive employee value proposition to attract the in-demand technical specialists required for platform support.

Implications for commodity traders

The five success factors raise strategic questions for all classes of commodity trading players to consider. The following list of questions is not exhaustive but highlights some of the most pressing challenges for various sectors.

• Oil and gas. What is the role of M&A in achieving portfolio scale and optionality, as well as in gaining trading capabilities? Are you prepared to make the necessary adjustments to the operating model? Should you expand into new commodities (such as green ammonia and hydrogen), and should you set up new trading activities to be integrated with oil and gas or to be separate?
• Utilities and renewable-asset players. Do you want to embrace short-term markets in renewables (such as hydrogen) or derisk assets through a customer-centric approach? What is the required level of scale and diversification in your portfolio and in your deep market insights to successfully employ a merchant or customer-centric strategy?
• Mining and metals. To what degree will customer centricity be a key value driver in the future, especially with increasing demand for green products and the need to build associated commercial and trading capabilities? What is the outlook at the product level on whether a market remains truly global or becomes more regional, and what does that imply for your portfolio and for your commercial and trading capabilities?
• Agriculture. How do you expect the convergence of food and energy (for example, biofuels) to evolve, and what does this imply for the need to develop portfolio and trading capabilities (for example, cross-commodity activities)? Given trading’s potential to generate value from embedded flexibility (optionality), how can you smartly scale up assets and positions to capture above-average returns?
• Large industrial consumers. To what degree should you pursue long-term contracts to lock in green supply versus taking a short-term approach to avoid being stuck with potentially high prices in the event of a market depression? How can you achieve the right share of low-carbon products and brands in your product portfolio to capture the green premium?

Three potential models

While the duration of this combination of cyclical bottlenecks, price transparency, and redefinition of commodity classes is uncertain, its effects will likely be felt beyond the short term and to different degrees in different commodities. In addition, many players will gravitate to one of three possible models, each with a different mix of the five success factors.

The global smart-scale trader

The digital enablement and convergence of markets, the prevalence of automation, and the migration of trading and optimization activity to short-term markets mean more players will be pursuing thinner margins. These developments will not only spur the addition of new at-scale players but also compel traders to ensure that their portfolios and customer access are more global and extend well beyond their legacy commodities. Players will explore both organic and inorganic options to achieve this growth. Incumbents of this model will use their access to competitive financing to attract flows from smaller players. The move toward third-party volumes in the portfolio will also enable a model that shifts from capital expenditures to operating expenditures. Integrated players will consider acquiring smaller trading units as an option to accelerate the buildup of trading capabilities.

The niche trader mastering ‘complexity’

In markets where scale is less relevant, lower barriers to entry are expected to attract multiple niche traders that target either regional or commodity-specific relationships. Specialists that enable new components of the carbon and ESG economy are one variation of this model. In the absence of barriers to entry, these players will need to develop and sustain a competitive edge based on either their customer centricity or their distinct technology and analytical capabilities. For example, in the biofuels feedstock market, players have carved out a niche by applying hard-to-replicate business models based on local insights, strong origination relationships, and acceptance of custom risks (such as those from innovative prefinancing agreements). As some of these fragmented markets become increasingly lucrative, niche traders could be viewed as acquisition targets by global smart-scale traders looking to add further scale and capabilities.

The tactical trader–investor

The cyclical nature of investment in commodity-based industries will result in supply and demand imbalances. Traders can capture value by taking positions that solve these imbalances. However, these types of positions (for example, battery storage leases) are not typically achievable through standard market access and therefore will create incentives for a breed of players willing to go outside traditional trading mandates. These tactical investors will possess a private equity mindset and use the strength of their balance sheets to take equity in illiquid physical positions aligned with their long-term views. In addition, they will possess a trading mindset that helps them better appreciate the nuances of the value of optionality associated with flexible assets, which in turn enables their capital allocation strategy.

Our analysis highlights the considerable impact possible through commodity trading in recent years and the underlying developments responsible. In the coming years, the effect of these developments and trends could be magnified, resulting in even more value at stake, which will then attract new players. An element of uncertainty surrounds these trends, especially with respect to timing. The combination of new players and uncertainty means winners need to think about both the size of their investment in these five success factors and their ability to move quickly.

Roland Rechtsteiner and Joscha Schabram are partners in McKinsey’s Zurich office, and Arun Thomas is a consultant in the Calgary office.

The authors wish to thank Gillian Boccara, Giorgio Bresciani, Hollie Coughlan, Robin Duquette, James Eddy, Stuart Evans, Tay Feder, Alvaro Gonzalez, Elliot Gordon, Ambar Gupta, Ahmed Irfan, Jukka Maksimainen, Oliver Ramsbottom, Gereon Rolvering, Namit Sharma, Piotr Szabat, Humayun Tai, Xavier Veillard, and Andrew Warrell for their contributions to this article.

Explore a career with us

Related articles.

A new age for energy and commodity trading

The new imperative for green commodities

Converging energy markets in pursuit of a net-zero world

How to open a commodity brokerage firm?

Are you keen to open a commodity brokerage firm but don't know where to begin? Then you're in luck because this guide will lead you through all the steps required to check if your business idea can be profitable and, if so, turn it into a reality. 

Our guide is for prospective entrepreneurs who are thinking about starting a commodity brokerage firm no matter how far they are in their journey - whether you’re just thinking about it or in the middle of market research this guide will be useful to you.

Think of this as your blueprint: we cover everything you need to know about opening a commodity brokerage firm and what key decisions you’ll need to make along the way.

Ready? Let’s get started!

In this guide:

• Understanding how a commodity brokerage firm works
• Assembling your commodity brokerage firm's founding team

Conducting market research for a commodity brokerage firm

Choosing the right concept and positioning for your commodity brokerage firm, deciding where to base your commodity brokerage firm, choosing your commodity brokerage firm's legal form.

• Calculating the budget to open a commodity brokerage firm
• Creating a sales & marketing plan for your commodity brokerage firm
• Building your commodity brokerage firm's financial forecast
• Finding a name and registering your commodity brokerage firm

Deciding upon the corporate identity of your commodity brokerage firm

• Understanding the legal and regulatory steps involved in opening a commodity brokerage firm

Writing a business plan for your commodity brokerage firm

• Financing the launch of your commodity brokerage firm

Launching your commodity brokerage firm and monitoring progress against your forecast

Key takeaways, what is the business model of a commodity brokerage firm.

Before thinking about starting a commodity brokerage firm, you'll need to have a solid understanding of its business model (how it generates profits) and how the business operates on a daily basis.

Doing so will help you decide whether or not this is the right business idea for you, given your skillset, personal savings, and lifestyle choices.

Looking at the business model in detail will also enable you to form an initial view of the potential for growth and profitability, and to check that it matches your level of ambition.

The easiest ways to acquire insights into how a commodity brokerage firm works are to:

Speak with commodity brokerage firm owners

Undertake work experience with a successful commodity brokerage firm, participate in a training course.

Talking to seasoned entrepreneurs who have also set up a commodity brokerage firm will enable you to gain practical advice based on their experience and hindsight.

Learning from others' mistakes not only saves you time and money, but also enhances the likelihood of your venture becoming a financial success.

Gaining hands-on experience in a commodity brokerage firm provides insights into the day-to-day operations, and challenges specific to the activity.

This firsthand knowledge is crucial for effective planning and management if you decide to start your own commodity brokerage firm.

You'll also realise if the working hours suit your lifestyle. For many entrepreneurs, this can be a "make or break" situation, especially if they have children to look after.

First-hand experience will not only ensure that this is the right business opportunity for you, but will also enable you to meet valuable contacts and gain a better understanding of customer expectations and key success factors which will likely prove advantageous when launching your own commodity brokerage firm.

Undertaking training within your chosen industry is another way to get a feel for how a commodity brokerage firm works before deciding to pursue a new venture.

Whichever approach you go for to gain insights before starting your commodity brokerage firm, make sure you familiarise yourself with:

• The expertise needed to run the business successfully (do you have the skills required?)
• How a week of running a commodity brokerage firm might look like (does this fit with your personal situation?)
• The potential turnover of your commodity brokerage firm and long-term growth prospects (does this match your ambition?)
• The likely course of action if you decide to sell the company or retire (it's never too early to consider your exit)

At the end of this stage, you should be able to decide whether opening a commodity brokerage firm is the right business idea for you given your current personal situation (skills, desires, money, family, etc.).

Create your business plan online!

Think your business idea could be profitable? Find out how with a business plan

Assemble your commodity brokerage firm's founding team

The next step to start your commodity brokerage firm is to think about the ideal founding team, or to go in alone (which is always an option).

Setting up a business with several partners is a way of reducing the (high) risk of launching a commodity brokerage firm since it allows the financial risk of the project to be shared between the co-founders.

This also allows the company to benefit from a greater diversity of profiles in the management team and to spread the burden of decision-making over several shoulders.

But, running a business with multiple co-founders brings its own challenges. Disagreements between co-founders are quite common, and these can pose risks to the business. That's why it's crucial to consider all aspects before starting your business.

To make an informed decision, we suggest asking yourself these questions:

How many co-founders would increase the project's chances of success?

Do you and your potential partners share the same aspirations for the project, what is your plan b in case of failure.

Let's examine each of these questions in detail.

The answer to this question will depend on a number of factors, including:

• Your savings compared with the amount of initial capital needed to launch the commodity brokerage firm
• The skills you have compared with those needed to make a success of such a project
• How you want key decisions to be taken in the business (an odd number of partners or a majority partner is generally recommended to avoid deadlock)

Put simply, your partners contribute money and/or skills, and increasing the number of partners is often a good idea when one of these resources is in short supply.

One of the key questions when selecting your potential partners will be their expectations. Do you want to create a small or large business? What are your ambitions for the next 10 or 15 years?

It's better to agree from the outset on what you want to create to avoid disagreements, and to check that you stay on the same wavelength as the project progresses to avoid frustration.

Of course, we wish you every success, but it's wise to have a plan B when setting up a business.

How you handle the possibility of things not working out can depend a lot on the kind of relationship you have with your co-founders (like being a close friend, spouse, former colleague, etc.) and each person's individual situation.

Take, for instance, launching a business with your spouse. It may seem like a great plan, but if the business doesn't succeed, you could find yourself losing the entire household income at once, and that could be quite a nerve-wracking situation.

Similarly, starting a business partnership with a friend has its challenges. If the business doesn't work out or if tough decisions need to be made, it could strain the friendship.

It's essential to carefully evaluate your options before starting up to ensure you're well-prepared for any potential outcomes.

The next step in launching a commodity brokerage firm is to carry out market research. Let's take a look at what this involves.

The objectives of market research

The objective here is very simple: to assess the level of demand for your business and whether there is an opportunity for it to thrive in your chosen location. 

The first step will be to check that the market is not saturated with competing offers and that there is room for a new player: your commodity brokerage firm.

Your market analysis will also help you identify a concept and market positioning that has every chance of being successful in your target market, thereby helping increase your business's chances of success.

Carrying out market research for your commodity brokerage firm will also enable you to better understand the expectations of your future customers and the most effective ways to communicate with them in your marketing plan.

Analyse key trends in the industry

Your market research should start with an industry analysis in order to gain a good understanding of the main players and current trends in your sector.

Once you've delved into the current state of the market, it will be time to assess what proportion of your target market can be seized by your commodity brokerage firm. To do this, you will need to consider both the demand and supply side of the market.

Assess the demand

After checking out the industry, let's shift our focus to figuring out what your potential customers want and how they like to buy.

A classic mistake made by first-time entrepreneurs is to assess demand on the global or national market instead of concentrating on their target market. Only the market share that can be captured by your company in the short term matters. 

Your demand analysis should seek to find answers to the following questions:

• Who are your target customers?
• How many are there?
• What are their expectations?
• What are their buying habits?
• How much budget do they have?
• What are the different customer segments and their characteristics?
• What are the main distribution channels and means of communication for reaching each segment?

The aim of the demand analysis is to identify the customer segments that could be targeted by your commodity brokerage firm and what products and services you need to offer to meet their expectations.

Analyse the supply side

You will also have to familiarize yourself with the competing commodity brokerage firms on the market targeted by your future business.

Amongst other things, you’ll need to ask yourself:

• Who are the main competitors?
• How many competitors are already present?
• Where are they located?
• How many people do they employ?
• What is their turnover?
• How do they set their prices?
• Are they small independent businesses or national players?
• Do they seem to be in difficulty or are they flourishing? 
• What is their market positioning?
• What types of products and services do they offer?
• What do customers seem to like about them?

The aim of the competitive analysis is to identify who your competitors will be and to gather information that will help you find a differentiating commercial positioning (more on that later in this guide).

Regulations

Conducting market research is also an opportunity to look at the regulations and conditions required to do business.

You should ask yourself the following questions:

• Do you need to have a specific degree to open a commodity brokerage firm?
• Do you need specific licences or permits?
• What are the main regulations applicable to your future business?

Given that your project is at an early stage, your focus should be to ensure that there are no roadblocks from a regulatory standpoint before you deep dive into the planning process.

Once your project is more advanced, you will have the opportunity to talk about regulation more in-depth with your lawyer.

Concluding your market research

By the time your market research is completed, you should have either:

• Pinpointed an untapped business opportunity,
• Or arrived at the realisation that the market is saturated, prompting the search for alternative business ideas or models.

If the conclusion is that there is an opportunity in the market to cater to one or more customer segments currently underserved by competitors, that's great!

Conversely, if you come to the conclusion that the market is already saturated, don’t panic! The good news is that you won’t spend several years working hard on a project that has little chance of success. There is no shortage of business ideas either - at The Business Plan Shop, we have identified more than 1,300 potential business ideas!

Don't start from scratch!

With dozens of business plan templates available, get a clear idea of what a complete business plan looks like

Once your market research is completed, it's time to consider the type of commodity brokerage firm you want to open and define precisely your company's market positioning in order to capitalise on the opportunity you identified during your market research.

Market positioning refers to the place your product and service offering occupies in customers' minds and how they differ from competing products and services. Being perceived as the premium solution, for example.

There are four questions you need to consider: 

How will you compete with and differentiate yourself from competitors already on the market?

Is it better to start or buy a commodity brokerage firm already in operation, how will you validate your concept and market positioning.

Let's look at each of these in a little more detail.

When you choose to start up a commodity brokerage firm, you are at a disadvantage compared to your rivals who have an established presence on the market. 

Your competitors have a reputation, a loyal customer base and a solid team already in place, whereas you're starting from scratch...

Entering the market and taking market share from your competitors won't happen automatically, so it's important to carefully consider how you plan to establish your presence.

There are four questions to consider here: 

• Can you avoid direct competition by targeting a customer segment that is currently poorly served by other players in the market?
• Can you offer something unique or complementary to what is already available on the market?
• How will you build a sustainable competitive advantage for your commodity brokerage firm? 
• Do you have the resources to compete with well-established competitors on your own, or would it be wiser to explore alternative options?

Also, think about how your competitors will react to your arrival in their market.

An alternative to opening a new business is to take over a commodity brokerage firm already trading. 

Purchasing an existing commodity brokerage firm means you get a loyal customer base and an efficient team. It also avoids disrupting the equilibrium in the market by introducing a new player.

A takeover hugely reduces the risk of the business failing compared to starting a new business, whilst giving you the freedom to change the market positioning of the business taken over if you wish.

This makes buying an existing commodity brokerage firm a solid alternative to opening your own.

However, buying a business requires more capital compared to starting a commodity brokerage firm from scratch, as you will need to purchase the business from its current owner.

Regardless of how you choose to establish your business, it's crucial to make sure that the way you position your company aligns with the expectations of your target market.

To achieve this, you'll have to meet with your potential customers to showcase your products or services and get their feedback.

The next step to opening a commodity brokerage firm is deciding where you want to set up your business.

Choosing the right location for your business is like finding the perfect stage for a play. Without it, your business may lack the spotlight it deserves.

Whilst there is no “perfect” location for your commodity brokerage firm, one that meets as many of the following factors as possible could be ideal:

• Visibility and foot traffic - This is important for a commodity brokerage firm as it allows for potential clients to see the business and increases the chances of attracting new customers.
• Parking space, road and public transport accessibility - This is necessary for clients who need to physically visit the brokerage firm and also for employees to easily commute to work.
• Proximity to target customers - As a commodity brokerage firm, it is important to be close to potential clients such as farmers, manufacturers, and other businesses involved in commodity trading.
• Competitor presence - Being aware of and understanding the competition in the area can help the firm develop effective strategies and stand out in the market.
• Efficient logistics - This is crucial for an industrial business as it involves the movement of goods and materials. A good location should have easy access to transportation routes and logistics facilities.
• Storage space - As a brokerage firm, it is essential to have adequate storage space for commodities being traded. A location with sufficient storage facilities and warehouses is ideal.
• Availability of skilled labor - A commodity brokerage firm requires skilled and knowledgeable employees. Being located in an area with a good pool of skilled labor can be beneficial for the firm.
• Easy access to main roads - This is important for transportation businesses as it allows for easy and efficient movement of goods and materials.
• Climate and soil quality - For an agricultural business, it is important to be located in an area with suitable climate and soil conditions for the production of crops or livestock.
• Adequate infrastructure - This is important for any business as it provides essential services such as electricity, water, and internet access.
• Premises layout - For a hospitality business, the layout of the premises is important in creating a comfortable and welcoming atmosphere for customers.
• Space to grow - As an e-commerce or online business, it is important to have room for expansion and growth. A location with potential for future development is ideal.
• Demographic of local population - This is important for a transportation business as the demand for transportation services is heavily influenced by the local population and their needs.

This list is obviously not exhaustive and will have to be adapted to the particularities of your project. 

Once you’ve considered the factors above, it’s important to think about the budget that your startup has at its disposal. You’ll need to find a location that meets your business requirements but is affordable enough, especially short-term.

If you opt for renting instead of buying your premises, make sure to take into account the terms of the lease, including aspects such as the duration, rent increase, renewal, and so on.

The lease contractual terms vary greatly from country to country, so be sure to check the terms applicable to your situation and have your lease reviewed by your lawyer before signing.

The next step to open a commodity brokerage firm is to choose the legal form of your business.

The legal form of a business simply means the legal structure it operates under. This structure outlines how the business is set up and defines its legal obligations and responsibilities.

Why is your commodity brokerage firm's legal form important?

Choosing the legal form for your commodity brokerage firm is an important decision because this will affect your tax obligations, your personal exposure to risk, how decisions are made within the business, the sources of financing available to you, and the amount of paperwork and legal formalities, amongst other things.

The way you set up your business legally will impact your taxes and social contributions, both at a personal level (how much your income is taxed) and at the business level (how much the business's profits are taxed).

Your personal exposure to risk as a business owner also varies based on the legal form of your business. Certain legal forms have a legal personality (also called corporate personality), which means that the business obtains a legal entity which is separate from the owners and the people running it. To put it simply, if something goes wrong with a customer or competitor, for example, with a corporate personality the business gets sued, whereas without it is the entrepreneur personally.

Similarly, some legal forms benefit from limited liability. With a limited liability the maximum you can lose if the business fails is what you invested. Your personal assets are not at risk. However, not all structures protect you in such a way, some structures may expose your personal assets (for example, your creditors might try to go after your house if the business incurs debts and then goes under without being able to repay what it owed).

How decisions are made within the business is also influenced by the legal form of your commodity brokerage firm, and so is the amount of paperwork and legal formalities: do you need to hold general assemblies, to produce annual accounts, to get the accounts audited, etc.

The legal form also influences what sources of financing are available to you. Raising capital from investors requires having a company set up, and they will expect limited liability and corporate personality.

What are the most common legal structures?

It's important to note that the actual names of legal structures for businesses vary from country to country . 

But they usually fall within two main types of structures:

Individual businesses

Individual businesses, such as sole traders or sole proprietorships, are legal structures with basic administrative requirements.

They primarily serve self-employed individuals and freelancers rather than businesses with employees.

The main downside of being a sole trader is that there's usually no legal separation between the business and the person running it. Everything the person owns personally is tied up with the business, which can be risky.

This means that if there are problems or the business goes bankrupt, the entrepreneur's personal assets could be taken by creditors. So, there's a risk of personal liability in case of disputes or financial issues.

It is also not possible to raise equity from investors with these structures as there is no share capital.

Despite the downsides, being a sole proprietorship has some advantages. There is usually very little paperwork to get started, simpler tax calculations and accounting formalities.

Companies are all rounders which can be set up by one or more individuals, working on their own or with many employees.

They are recognized as a distinct entity with their own legal personality, and the liability is usually limited to the amount invested by the owners (co-founders and investors). This means that you cannot lose more than you have invested in the business.

This separation ensures that in legal disputes or bankruptcy, the company bears primary responsibility, protecting the personal assets of the founder(s) and potential investor(s).

How should I choose my commodity brokerage firm's legal structure?

Deciding on the legal structure is usually quite straightforward once you know how many co-founders you'll have, whether you'll have employees, and the expected revenues for the business.

A good business idea will be viable whatever the legal form you choose. How businesses are taxed changes every year, therefore one cannot rely on specific tax benefits tied to a particular structure when deciding to go into business.

One easy way to proceed is to take note of the legal structures used by your top five competitors, and assume you're going with the most commonly chosen option. Once your idea is mature and you're prepared to formally register the business, you can validate this assumption with a lawyer and an accountant.

Can I switch my commodity brokerage firm's legal structure if I get it wrong?

You can switch your legal setup later on, even if it involves selling the old one to a new entity in some cases. However, this comes with extra costs, so it's better to make the right choice from the beginning if you can.

Assess the startup costs for a commodity brokerage firm

The next step in creating a commodity brokerage firm involves thinking about the equipment and staff needed for the business to operate.

After figuring out what you need for your business, your financial plan will reveal how much money you'll need to start and how much you might make (check below for more details).

Because every venture is distinctive, providing a reliable one-size-fits-all budget for launching a commodity brokerage firm without knowing the specifics of your project is not feasible.

Each project has its own particularities (size, concept, location), and only a forecast can show the exact amount required for the initial investment.

The first thing you'll need to consider is the equipment and investments you'll need to get your business up and running.

Startup costs and investments to launch your commodity brokerage firm

For a commodity brokerage firm, the initial working capital requirements (WCR) and investments could include the following elements:

• Trading Software: As a commodity brokerage firm, you will need to invest in a reliable and efficient trading software to manage your clients' orders and trades. This software should have features such as real-time market data, order execution, risk management, and reporting capabilities.
• Telecommunications Equipment: In order to communicate with your clients and other market participants, you will need to invest in telecommunications equipment such as phones, computers, and internet connectivity. These tools are essential for staying connected and executing trades in a timely manner.
• Office Space and Furniture: As a commodity brokerage firm, you will need to have a physical office space to conduct your business operations. This may include purchasing or leasing office space, as well as furnishing it with desks, chairs, and other necessary furniture.
• Security Systems: As a financial institution, it is important to prioritize the security of your clients' information and assets. Therefore, investing in security systems such as surveillance cameras, access control systems, and alarm systems is crucial for protecting your office and clients' data.
• Data Storage and Backup Systems: In order to store and protect your clients' data, you will need to invest in data storage and backup systems. This may include purchasing servers, cloud storage, and backup software to ensure the safety and accessibility of your clients' information.

Of course, you will need to adapt this list to your business specificities.

Staffing plan of a commodity brokerage firm

In addition to equipment, you'll also need to consider the human resources required to run the commodity brokerage firm on a day-to-day basis.

The number of recruitments you need to plan will depend mainly on the size of your company.

Once again, this list is only indicative and will need to be adjusted according to the specifics of your commodity brokerage firm.

Other operating expenses for a commodity brokerage firm

While you're thinking about the resources you'll need, it's also a good time to start listing the operating costs you'll need to anticipate for your business.

The main operating costs for a commodity brokerage firm may include:

• Staff costs: Salaries, bonuses, benefits, and any other expenses related to hiring and retaining employees, such as training and recruitment fees.
• Accountancy fees: Fees for external accountants or auditors to review financial statements and ensure compliance with regulatory requirements.
• Insurance costs: Insurance premiums for professional liability, property, and cyber liability insurance.
• Software licenses: Fees for software used to manage trading activities, such as trading platforms, risk management systems, and accounting software.
• Banking fees: Fees for maintaining bank accounts, wire transfers, and other banking services used for trading activities.
• Market data fees: Fees for access to market data and real-time quotes from exchanges and other data providers.
• Rent and utilities: Costs for office space, electricity, water, and other utilities.
• Marketing and advertising: Expenses for promoting the brokerage firm, such as print and digital advertising, sponsorships, and events.
• Travel expenses: Costs for business travel, including airfare, accommodations, and meals.
• Professional fees: Fees for legal services, consulting, and other professional services.
• Commissions and fees: Fees for executing trades on behalf of clients and commissions paid to brokers or agents who bring in new business.
• Office supplies and equipment: Costs for office supplies, equipment, and furniture, such as computers, printers, and office supplies.
• Telephone and internet: Costs for phone and internet services used for business purposes.
• Training and education: Expenses for employee training and development, including industry certifications and conferences.
• Miscellaneous expenses: Other operating expenses, such as postage, software upgrades, and professional memberships.

Like for the other examples included in this guide, this list will need to be tailored to your business but should be a good starting point for your budget.

Create a sales & marketing plan for your commodity brokerage firm

The next step to launching your commodity brokerage firm is to think about the actions you need to take to promote your products and services and build customer loyalty.

Here, you'll be looking at the following issues:

• What is the best method to attract as many new customers as possible?
• How to build customer loyalty and spread word of mouth?
• What human and financial resources will be required to implement the planned actions?
• What level of sales can I expect to generate in return?

The precise sales and marketing levers to activate will depend on the size of your commodity brokerage firm. But you could potentially leverage some of the initiatives below.

Besides your sales and marketing plan, your sales forecast will be affected by seasonal patterns related to the nature of your business, such as fluctuations during the holiday season, and your competitive landscape.

Build your commodity brokerage firm's financial forecast

The next step to start your commodity brokerage firm: putting your financial projections together.

What is the financial forecast for a commodity brokerage firm?

A forecast is a quantified decision-making document that shows the initial investment required to open a commodity brokerage firm and the company's potential profitability and cash flow generation over the next 3 to 5 years.

As you think about your commodity brokerage firm idea, the main role of financial projections will be to help you decide whether it makes sense to create the company.

Building a financial forecast helps determine the amount of initial financing required to start your commodity brokerage firm.

In fact, creating financial projections is the only way to assess the amount of initial financing you'll need to open your commodity brokerage firm, and to make sure your project makes economic and financial sense.

Keep in mind that very few business ideas are financially viable. At The Business Plan Shop, we've seen nearly a million business start-up ideas, and we estimate that less than one in four is economically viable.

Your forecast will therefore require your full attention and constant revision, as your project matures. It's also a good idea to simulate different scenarios to anticipate several possibilities (what happens if your sales take longer than expected to ramp up, for example), so you're ready for all eventualities.

When seeking financing, your forecast will be incorporated into your business plan, which is the document you will use to present your business idea to financial partners. We'll come back to the business plan in more detail later in this guide.

Creating and updating your commodity brokerage firm's forecast is an ongoing process. Indeed, having up-to-date financial projections is the only way to maintain visibility over your company's future cash flow and cash position.

Forecasting is, therefore, the financial management tool that will be with you throughout the life of your company. Once you've started trading, you'll need to regularly compare the difference between your actual accounts and your forecasts, and then adjust them to maintain visibility over your future cash flows.

What does a financial projection look like?

The following financial tables will be used to present your commodity brokerage firm's financial forecast.

The projected P&L statement

Your commodity brokerage firm's forecasted P&L statement will enable you to visualise your commodity brokerage firm's expected growth and profitability over the next three to five years.

The projected balance sheet of your commodity brokerage firm

The projected balance sheet gives an overview of your commodity brokerage firm's financial structure at the end of the financial year.

The cash flow projection

A cash flow forecast for a commodity brokerage firm shows the projected inflows and outflows of cash over a specific period, providing insights into liquidity and financial health.

Which solution should you use to make a financial forecast for your commodity brokerage firm?

The easiest and safest way to create your commodity brokerage firm forecasts is to use an online financial forecasting software , like the one we offer at The Business Plan Shop.

There are several advantages to using professional software:

• You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
• You have access to complete financial forecast templates
• You get a complete financial forecast ready to be sent to your bank or investors
• The software helps you identify and correct any inconsistencies in your figures
• You can create scenarios to stress-test your forecast's main assumptions to stress-test the robustness of your business model
• After you start trading, you can easily track your actual financial performance against your financial forecast, and recalibrate your forecast to maintain visibility on your future cash flows
• You have a friendly support team on standby to assist you when you are stuck

If you are interested in this type of solution, you can try our forecasting software for free by signing up here .

Choose a name and register your commodity brokerage firm

The next phase in launching your commodity brokerage firm involves selecting a name for your company.

This stage is trickier than it seems. Finding the name itself is quite fun; the difficulty lies in finding one that is available and being the first to reserve it.

You cannot take a name that is similar to a name already used by a competitor or protected by a registered trademark without inevitably risking legal action.

So you need to find a name that is available, and be able to register it before someone else can.

In addition, you will probably want to use the same name for:

• Your company’s legal name - Example LTD
• Your business trading name - Example
• The trademark - Example ® 
• Your company’s domain name - Example.com

The problem is that the procedures for registering these different names are carried out in different places, each with their own deadlines:

• Registering a domain name takes only a few minutes
• Registering a new trademark takes at least 12 weeks (if your application is accepted)
• The time taken to register a new business depends on the country, but it's generally fast

You will therefore be faced with the choice of: either registering everything at once and hoping that your name will be accepted everywhere, or proceeding step by step in order to minimise costs, but taking the risk that someone else will register one of the names you wanted in the meantime.

Our advice is to discuss strategy with your legal counsel (see further down in this guide) and prioritise your domain names and registered trademarks. You'll always have the option of using a trade name that's different from your company's legal name, and that's not a big deal.

To check that the name you want is not already in use, you should consult:

• Your country's business register
• The relevant trademark registers depending on which countries you want to register your trade mark in
• A domain name reservation company such as GoDaddy
• An Internet search engine

In this area too, your legal counsel will be able to help with the research and formalities.

The next step in opening a commodity brokerage firm is to look at your company's visual identity. 

Your company's “visual identity” plays a crucial role in shaping your brand image. It helps you to be recognizable and to stand out from your competitors. 

Although you can define your visual identity yourself, it is generally advisable to call on the services of a designer or marketing agency to achieve a professional result.

At a minimum, you will need to define the following elements: 

Brand guidelines

Business cards, website theme.

Your commodity brokerage firm's logo allows others to quickly identify your company. It will be used on all your communication media (website, social networks, business cards, etc.) and official documents (invoices, contracts, etc.).

In addition to its design, it's important that your logo is available in a variety of colors, so that it can be seen on all media (white, dark background, etc.).

Having brand guidelines enables you to maintain consistency in formatting across all your communications media and official documents. 

Brand guidelines define the font (family and size), design and colours used by your brand. 

In terms of fonts, for example, you may use Roboto in size 20 for your titles and Lato in size 14 for your texts. 

The colours used to represent your brand should generally be limited to five: 

• The main colour, 
• A secondary colour (the accent),
• A dark background colour (blue or black),
• A grey background colour (to vary from white),
• Possibly another secondary colour.

Designing business cards for your commodity brokerage firm is a must, as they will allow you to communicate your contact details to your customers, suppliers, partners, potential recruits, etc. 

In principle, they will include your logo and the brand guidelines that we mentioned above.

In the same way, the theme of your commodity brokerage firm website will be based on your logo and the brand guidelines we mentioned above.

This involves defining the look and feel of your site's main graphic elements:

Navigate the legal and regulatory requirements for launching your commodity brokerage firm

The next thing to do in getting a commodity brokerage firm off the ground is to handle all the legal and regulatory requirements. We recommend that you be accompanied by a law firm for all of the steps outlined below.

Intellectual property

One of your priorities will be to ensure that your company's intellectual property is adequately protected.

As explained before, you can choose to register a trademark. Your lawyer can help you with a detailed search to make sure your chosen trademark is unique and doesn't clash with existing ones.

They'll assist in preparing the required documents and steer you in picking the right categories and locations for trademark registration.

Moreover, your lawyer can offer guidance on additional measures to protect other intellectual property assets your company may have.

Getting your commodity brokerage firm paperwork in order

For day-to-day operations, your commodity brokerage firm will need to rely on a set of contractual documents. 

Your exact needs in this respect will depend on the country in which you are launching your commodity brokerage firm, the number of partners and the envisaged size of the company. 

However, you will probably need at least the following documents:

• Employment contracts 
• General terms and conditions of sale
• General terms and conditions of use for your website
• Privacy Policy for your website
• Cookie Policy for your website

Applying for licences and permits and registering for various taxes

Operating your business legally may require licences and business permits. The exact requirements applicable to your situation will depend on the country in which you set up your commodity brokerage firm.

The lawyers who advise you will also be able to guide you with regard to all the rules applicable to your business.

Similarly, your accountant will be able to help you take the necessary steps to comply with the tax authorities.

The next step in opening a commodity brokerage firm is to draw up your business plan.

What is a commodity brokerage firm's business plan?

A business plan serves as a comprehensive roadmap outlining the objectives, strategies, and key components of your venture. 

There are two essential parts to a business plan:

• A numerical part, the financial forecast we mentioned earlier in this guide, which highlights the amount of initial financing needed to launch the business and its potential profitability over the next 3 to 5 years,
• A written part, which presents in detail the project of creating a commodity brokerage firm and provides the necessary context to enable the reader of the business plan to judge the relevance and coherence of the figures included in the forecast.

Your business plan helps guide decision-making by showcasing your vision and financial potential in a coherent manner.

Your business plan will also be essential when you're looking for financing, as your financial partners will ask you for it when deciding whether or not to finance your project to open a commodity brokerage firm. So it's best to produce a professional, reliable, and error-free business plan.

In essence, your business plan is the blueprint to turn your idea into a successful reality. 

What tool should you use to create your commodity brokerage firm business plan?

If you want to write a convincing business plan quickly and efficiently, a good solution is to use an online business plan software for business start-ups like the one we offer at The Business Plan Shop.

Using The Business Plan Shop to create a business plan for a commodity brokerage firm has several advantages :

• You are guided through the writing process by detailed instructions and examples for each part of the plan
• You can access a library of dozens of complete startup business plan samples and templates for inspiration
• You get a professional business plan, formatted and ready to be sent to your bank or investors
• You can create scenarios to stress test your forecast's main assumptions
• You can easily track your actual financial performance against your financial forecast by importing accounting data
• You can easily update your forecast as time goes by to maintain visibility on future cash flows

If you're interested in using our solution, you can try The Business Plan Shop for free by signing up here .

How to raise finance for my commodity brokerage firm?

Once your business plan has been drafted, you’ll need to think about how you might secure the financing necessary to open your commodity brokerage firm.

The amount of initial financing required will obviously depend on the size of your commodity brokerage firm and the country in which you wish to set up.

Businesses have access to two main categories of financing: equity and debt. Let's take a closer look at how they work and what sources are available.

Equity funding

At a high level, the equity of your commodity brokerage firm will consist of the money that founders and potential investors will invest to launch the company.

Equity is indispensable as it provides the company with a source of long-term (often permanent) financing and demonstrates the founders' conviction in the company's chances of success, since their investments would be lost in the event of bankruptcy.

Equity investors can generate a return on their investment through dividends (which can only be paid out if the company is profitable) or capital gains on the resale of their shares (if the company is attractive enough to attract a buyer).

As you can see, the equity investors' position is extremely risky, since their capital is at risk and can be lost in the event of bankruptcy, and the company must be profitable or resellable before they can hope to generate a return on their investment.

On the other hand, the return on investment that equity investors can expect to generate by investing in a commodity brokerage firm can be very substantial if the company is successful.

This is why equity investors look for start-up ideas with very high growth or profitability potential, in order to offset their risk with a high potential return on investment.

In technical terms, equity includes:

• Share capital and premiums: which represent the amount invested by the shareholders. This capital is considered permanent as it is non-refundable. In return for their investment, shareholders receive shares that entitle them to information, decision-making power (voting in general assembly), and the potential to receive a portion of any dividends distributed by the company.
• Director loans: these are examples of non-permanent capital advanced to the company by the shareholders. This is a more flexible way of injecting some liquidity into your company than doing so as you can repay director loans at any time.
• Reserves: these represent the share of profits set aside to strengthen the company's equity. Allocating a percentage of your profits to the reserves can be mandatory in certain cases (legal or statutory requirement depending on the legal form of your company). Once allocated in reserves, these profits can no longer be distributed as dividends.
• Investment grants: these represent any non-refundable amounts received by the company to help it invest in long-term assets.
• Other equity: which includes the equity items which don't fit in the other categories. Mostly convertible or derivative instruments. For a small business, it is likely that you won't have any other equity items.

The main sources of equity are as follows:

• Money put into the business from the founders' personal savings.
• Money invested by private individuals, which can include business angels, friends, and family members.
• Funds raised through crowdfunding, which can take the form of either equity or donations (often in exchange for a reward).
• Government support to start-ups, for example, loans on favourable terms to help founders build up their start-up capital.

Debt funding

The other way to finance your commodity brokerage firm is to borrow. From a financial point of view, the risk/return profile of debt is the opposite of that of equity: lenders' return on investment is guaranteed, but limited.

When it borrows, your company makes a contractual commitment to pay the lenders by interest, and to repay the capital borrowed according to a pre-agreed schedule.

As you can see, the lenders' return on investment is independent of whether or not the company is profitable. In fact, the only risk taken by lenders is the risk of the company going bankrupt.

To avoid this risk, lenders are very cautious, only agreeing to finance when they are convinced that the borrowing company will be able to repay them without problems.

From the point of view of the company and its stakeholders (workforce, customers, suppliers, etc.), debt increases the risk of the venture, since the company is committed to repaying the capital whether or not it is profitable. So there's a certain distrust towards heavily indebted companies.

Companies borrow in two ways:

• Against their assets: this is the most common way of borrowing. The bank finances a percentage of the price of an asset (a vehicle or a building, for example) and takes the asset as collateral. If the company cannot repay, the bank seizes the asset and sells it to limit its losses.
• Against their future cash flows: the bank reviews the company's financial forecast to estimate how much the company can comfortably borrow and repay, and what terms (amount, interest rate, term, etc.) the bank is prepared to offer given the credit risk posed by the company.

When creating a commodity brokerage firm, the first option is often the only one available, as lenders are often reluctant to lend on the basis of future cash flows to a structure that has no track record.

The type of assets that can be financed using the first method is also limited. Lenders will want to be sure that they can dispose of foreclosed assets if needed, so they need to be assets that have an established second-hand market.

That being said, terms and conditions also depend on the lender: some banks are prepared to finance riskier projects, and not all have the same view of your company's credit risk. It also depends on the collateral you can offer to reduce risk, and on your relationship with the bank.

In terms of possible sources of borrowing, the main sources here are banks and credit institutions.

In some countries, it's also possible to borrow from private investors (directly or via crowdlending platforms) or other companies, but not everywhere.

Takeaways on how to finance a commodity brokerage firm

Multiple options are available to help you raise the initial financing you need to launch your commodity brokerage firm.

There are two types of financing available to companies. To open a commodity brokerage firm, an equity investment will be required and may be supplemented by bank financing.

Once you’ve secured financing, you will finally be ready to launch your commodity brokerage firm. Congratulations! 

Celebrate the launch of your business and acknowledge the hard work that brought you here, but remember, this is where the real work begins. 

As you know, 50% of business start-ups do not pass the five-year mark. Your priority will be to do everything to secure your business's future. 

To do this, it is key to keep an eye on your business plan to ensure that you are on track to achieve your goals.

No one can predict the future with certainty, so it’s likely that your commodity brokerage firm's financial performance will differ from what you predicted in your forecast.

This is why it is recommended to make several forecasts: 

• A base case (most likely)
• An optimistic scenario
• And a pessimistic scenario to test the robustness of your financial model

If you follow this approach, your numbers will hopefully be better than your optimistic case and you can consider accelerating your expansion plans. That’s what we wish you anyway!

If, unfortunately, your figures are below your base case (or worse than your pessimistic case), you will need to quickly put in place corrective actions, or consider stopping the activity. 

The key, in terms of decision-making, is to regularly compare your real accounting data to your commodity brokerage firm's forecast to: 

• Measure the discrepancies and promptly identify where the variances with your base case come from
• Adjust your financial forecast as the year progresses to maintain visibility on future cash flow and cash position

There is nothing worse than waiting for your accountant to prepare your year-end accounts, which can take several months after the end of your financial year (up to nine months in the UK for example), to realise that the performance over the past year was well below the your base case and that your commodity brokerage firm will not have enough cash to keep running over the next twelve months.

This is why using a financial forecasting solution that integrates with accounting software and offers actuals vs. forecast tracking out of the box, like the financial dashboards we offer at The Business Plan Shop , greatly facilitates the task and significantly reduces the risk associated with starting a business.

• This guide outlines the 15 key steps to open a commodity brokerage firm.
• The financial forecast is the tool that will enable you to validate the financial viability of your business idea.
• The business plan is the document that will enable you to approach your financial and commercial partners to convince them of the strengths of your project and secure the financing you need to launch your business.
• The real work begins once you've launched your business, and the only way to maintain visibility of your company's future cash flow is to keep your forecast up to date.
• Using a financial planning and analysis platform that combines forecasting, business planning and actual vs. forecast tracking and monitoring, such as The Business Plan Shop, makes the process easier and reduces the risks involved in starting a business.

We hope this guide has helped you understand how to start a commodity brokerage firm. Please don't hesitate to contact us if you have any questions.

Also on The Business Plan Shop

• Business plan samples for start-ups

Do you know someone who wants to know how to open a commodity brokerage firm? Share our guide with them!

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

Create a convincing business plan

Assess the profitability of your business idea and create a persuasive business plan to pitch to investors

500,000+ entrepreneurs have already tried our solution - why not join them?

Not ready to try our on-line tool ? Learn more about our solution here

Need some inspiration for your business plan?

Subscribe to The Business Plan Shop and gain access to our business plan template library.

Need a professional business plan? Discover our solution

Write your business plan with ease!

It's easy to create a professional business plan with The Business Plan Shop

Want to find out more before you try? Learn more about our solution here

Getting Started With Commodities

The global economy runs on commodities. Whether it's the oil that fuels our cars or the precious metals that go into our gadgets, raw materials are always in demand. But for many investors, the world of commodities can seem complex and intimidating.

YOUR CAPITAL IS AT RISK

If you're interested in commodity trading and investing, the good news is that it's never been easier to get started. But before you do, it's essential that you have a solid understanding of the fundamentals.

Table of contents

What is a commodity, where are commodities traded, are commodities regulated, types of commodities, commodity risks, trading commodities online.

A commodity is a raw material that can be grown, extracted or mined for use in the production process to manufacture finished goods. We impact the commodities market with our actions every single day. From the moment we sip a cup of coffee in the morning to the clothes we choose to wear, the car we drive and the groceries we buy.

Commodities are the building blocks of nearly everything we use in life, whether they are mined from beneath the earth’s surface or grown on the topsoil of the planet. Commodity trading has evolved over time to smooth out the financial bumps in the road from the producer/miner to the user/manufacturer, both of whom must make substantial capital commitments before fixing market prices.

Commodities are traded on an exchange through futures contracts, stocks, and ETFs, while they can also be bought and sold in their physical states. 

A commodity exchange is an exchange, or market, where various commodities are traded. Trading on an exchange includes various types of derivatives and contracts based on these commodities, such as forwards, futures and options, as well as spot trades. Access to these exchanges can be direct or through brokers – the obvious path for individual traders.

The largest commodity exchanges in the world are:

• Tokyo Commodity Exchange
• Dalian Commodity Exchange China
• Multi Commodity Exchange
• Intercontinental Exchange
• Africa Mercantile Exchange
• Uzbek Commodity Exchange

Some exchanges specialize in a particular group of commodities, including:

• Chicago Mercantile Exchange (energy and metals)
• ICE Futures US (agricultural products)
• Chicago Board of Trade (agricultural products)
• LIFFE (agricultural products)
• London Metal Exchange (non-precious metals)
• ICE Futures Exchange (energy)

Yes, they are. Each commodity market has a primary regulator, much the same way as with regulatory oversight of stocks. In the United States, the primary regulatory body is the Commodity Futures Trading Commission (CFTC) , while the Financial Conduct Authority (FCA) performs the same function in the UK. Other well-known regulatory bodies from around the world include ASIC (Australia) , BaFIN (Germany) , FMA (New Zealand) , FINMA (Switzerland) and FSA (Japan) .

There are no hard and fast rules for categorizing commodities. The classifications are general, each comprising a multitude of items. An EFT may include a group classification, but a trade in the futures market could be for a specific commodity or index, i.e., for a specific commodity or basket of commodities. 

Tradable commodities fall into a number of categories, including grains, softs, livestock, energy, metals, and ‘other.’

• Softs (cocoa, coffee, cotton, orange juice, sugar)
• Livestock (feeder cattle, live cattle, lean hogs, pork bellies)
• Energy (brent crude oil, WTI crude oil, gasoline, heating oil, natural gas)
• Metals ( steel ,  copper , iron, gold, nickel, palladium, platinum, silver, aluminum)
• Other (lumber, rubber, wool)

Traders often encounter the use of  ‘hard’  and  ‘soft’  when describing commodity types.

• A hard commodity is any commodity that must be mined ( gold ,  silver ) or extracted (rubber, oil).
• A soft commodity describes anything of an agricultural nature (corn, soybeans, wheat, rice).

To confuse matters even further, the word “raw” is often used, as well, more as a broad definition of any raw material used in the production of something else.

Oil  is the most valuable traded commodity.  Energy  is known as the  ‘Mother of All Markets’  and constitutes in excess of $1.3 trillion – roughly 3.6% – of global GDP. Oil tops the list of products, which can be further broken down into various crude oil qualities, heating oil, and its cousin,  natural gas . 

Everything from the weather to competition and to inventories on hand can unduly cause extreme market fluctuations in price. Here are some of the macro risks to watch out for:

Volatility: Commodity trading is known to have a high-risk profile, which means that there is a high potential for reward but also a high potential for loss as well.

Geopolitical Events: Geopolitical risks can significantly impact the price of commodities. For example, the recent tensions in the Middle East resulted in an initial surge in the price of gold.

Macroeconomic Conditions: The global economy can also impact commodity prices. For example, if an economy goes through a downturn and demand for certain products declines, the commodity or commodities used in those products may also come under pressure. 

Weather: Some commodity prices may be impacted by weather events. For example, extreme heat waves and droughts have the potential to impact the global food supply and send wheat prices soaring.

Inventories: Elevated inventory levels indicate an oversupply and can lead to downward pressure on the price of a commodity. ON the other hand, low inventory levels suggest potential scarcity, pushing prices higher. 

You now have a basic understanding of the global commodities market, the types of commodities that are traded, and the exchanges that are at the core of the commodity market.

To begin trading commodities, you will need a brokerage account that allows you to buy and sell commodities on their platform (some may only offer stocks or forex etc).

Searching for the right broker can be tough. However, we have done the legwork for you. Below is a list of the top brokerage accounts that allow you to trade commodities: 

• Pepperstone

What Is the Best Way to Trade Commodities?

The best  way to trade commodities  is to match your trading personality and tolerance for risk with a method that does not cause you to lose sleep at night. 

Depending upon your tolerance for risk and favored commodity, there are six ways you can trade commodities:

• Traditional stock ownership of a commodity producer
• Exchange-traded funds (ETFs)
• Mutual, managed, or index funds
• Contracts for Difference  (CFDs)
• Options on Futures
• Futures Contracts

Commodity Trading Set Up for Beginners: A Clear and Confident Guide

• January 23, 2024
• , Blog , Commodity trading , Derivatives , Guide

Commodity trading is a popular investment option for many beginners who are looking to diversify their investment portfolio. This type of trading involves buying and selling commodities such as gold, silver, oil, and agricultural products. Although commodity trading can be profitable, it can also be risky, especially for those who are new to the market.

To set up a successful commodity trading plan, beginners need to understand the basics of the market. This includes learning about the different types of commodities, how they are traded, and the factors that can affect their prices. It is also important to have a clear understanding of the risks involved and to develop a solid trading strategy that aligns with their investment goals. In this article, we will provide a comprehensive guide for beginners on how to set up a commodity trading plan that can lead to long-term success.

Understanding Commodity Markets

Types of commodities.

Commodities are raw materials or primary agricultural products that can be bought and sold, such as gold, oil, wheat, and coffee. They are divided into two categories: hard and soft commodities. Hard commodities are natural resources that must be mined or extracted, such as gold, silver, copper, and oil. Soft commodities, on the other hand, are agricultural products, such as wheat, corn, soybeans, and coffee.

How Commodity Markets Work

Commodity markets are where buyers and sellers trade commodities. These markets are made up of physical and virtual exchanges where commodities are bought and sold. The price of a commodity is determined by supply and demand. If there is a surplus of a commodity, the price will go down, and if there is a shortage, the price will go up.

Commodity trading involves buying and selling contracts for the delivery of a specific commodity at a future date. These contracts are standardized and traded on exchanges. Commodity traders can make money by buying contracts at a low price and selling them at a higher price.

Role of Exchanges

Exchanges play a crucial role in commodity trading. They provide a platform for buyers and sellers to trade commodities. Exchanges also set the rules and regulations for trading, including contract specifications, delivery terms, and trading hours.

Some of the major commodity exchanges include the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYMEX), and London Metal Exchange (LME). Each exchange specializes in specific commodities, and traders can choose the exchange that best suits their trading needs.

In conclusion, understanding commodity markets is essential for beginners who want to start trading commodities. By knowing the types of commodities, how commodity markets work, and the role of exchanges, traders can make informed decisions and minimize risks.

Setting Up a Trading Account

Commodity trading can be a lucrative investment opportunity for beginners. However, before you can start trading, you need to set up a trading account. Here are the essential steps to follow:

Choosing a Broker

The first step in setting up a trading account is to choose a reputable broker. A broker is a financial institution that acts as an intermediary between you and the commodity market. They provide access to the market and execute trades on your behalf.

When choosing a broker, consider the following factors:

• Reputation: Look for a broker with a good reputation in the industry. Check online reviews and ratings to see what other traders have to say about the broker.
• Fees and Commissions: Different brokers charge different fees and commissions. Look for a broker with competitive rates that fit your budget.
• Trading Platform: A good trading platform is essential for effective trading. Look for a broker with a user-friendly platform that offers real-time data, analytical tools, and other features that can help you make informed trading decisions.

Account Types and Requirements

Once you have chosen a broker, the next step is to open an account. Brokers offer different types of accounts, including:

• Standard Accounts: These are basic accounts that require a minimum deposit and offer limited features.
• Premium Accounts: These accounts require a higher deposit but offer more features, such as lower fees and commissions, access to premium research, and dedicated customer support.
• Demo Accounts: Some brokers offer demo accounts that allow you to practice trading without risking real money.

To open an account, you will need to provide some personal information, such as your name, address, and contact details. You may also need to provide proof of identity and address, such as a passport or utility bill.

In conclusion, setting up a trading account is the first step towards commodity trading. By choosing a reputable broker and the right account type, beginners can start trading with confidence.

Developing a Trading Plan

Before jumping into commodity trading, it is essential to have a well-defined trading plan. A trading plan is a set of guidelines that traders follow to execute their trades. It should include the trader’s risk management strategy, trading strategies, and goals.

Risk Management

Risk management is an essential component of commodity trading. Traders must have a clear understanding of their risk tolerance and implement strategies to manage their risks. One way to manage risk is to use stop-loss orders. A stop-loss order is an order placed with a broker to buy or sell a commodity once it reaches a specific price.

Another way to manage risk is to diversify the portfolio. Diversification involves investing in different commodities to spread out the risk. This approach reduces the impact of a single commodity’s price movement on the overall portfolio.

Trading Strategies

Traders use different strategies to execute their trades. One popular strategy is trend following. Trend following involves buying commodities when their prices are rising and selling them when their prices are falling. Another strategy is mean reversion, which involves buying commodities when their prices are low and selling them when their prices are high.

Setting Goals

Setting goals is an essential part of developing a trading plan. Goals can help traders stay focused and motivated. Goals should be specific, measurable, achievable, relevant, and time-bound. For example, a trader might set a goal to earn a 10% return on investment in six months.

In conclusion, developing a trading plan is crucial for beginners in commodity trading. A well-defined trading plan can help traders manage their risks, execute their trades efficiently, and achieve their goals.

Technical Analysis Fundamentals

Reading commodity charts.

Before trading commodities, it is essential to understand how to read commodity charts. A commodity chart displays the price movements of a particular commodity over time. The chart typically shows the commodity’s price on the y-axis and time on the x-axis.

Commodity charts can be displayed in different timeframes, such as daily, weekly, or monthly. Traders can use these charts to identify trends, support and resistance levels, and other critical price levels.

Technical Indicators

Technical indicators are mathematical calculations based on a commodity’s price and/or volume. These indicators are used to identify potential trading opportunities and to confirm price movements.

Some popular technical indicators used in commodity trading include Moving Averages, Relative Strength Index (RSI), and Stochastic Oscillator. Traders can use these indicators to identify overbought or oversold conditions, trend reversals, and other potential trading opportunities.

Price Patterns

Price patterns are formed by the movement of a commodity’s price over time. These patterns can be used to identify potential trading opportunities.

Some popular price patterns used in commodity trading include Head and Shoulders, Double Tops, and Triangles. Traders can use these patterns to identify potential trend reversals or to confirm existing trends.

In summary, technical analysis is an essential tool for commodity traders. By understanding how to read commodity charts, using technical indicators, and identifying price patterns, traders can make informed trading decisions.

Fundamental Analysis in Commodity Trading

Fundamental analysis is a crucial aspect of commodity trading that helps traders make informed decisions about buying and selling commodities. It involves analyzing various economic, financial, and geopolitical factors that affect the supply and demand of commodities.

Supply and Demand Dynamics

The first step in fundamental analysis is to understand the supply and demand dynamics of the commodity being traded. Traders need to consider factors such as production, transportation, storage, and consumption of the commodity. They also need to analyze the impact of weather conditions, natural disasters, and geopolitical events on the supply and demand of the commodity.

Economic Indicators

Economic indicators such as inflation, interest rates, and GDP growth can have a significant impact on commodity prices. Traders need to keep a close eye on these indicators and understand how they affect the demand for commodities. For example, if inflation is high, the demand for commodities such as gold and silver may increase as investors look for a safe haven for their money.

Market Reports and News

Market reports and news can provide valuable insights into the supply and demand dynamics of commodities. Traders need to keep themselves updated on the latest news and reports related to the commodity they are trading. They also need to analyze the impact of market reports and news on the price of the commodity.

Overall, fundamental analysis is an essential tool for commodity traders to make informed decisions about buying and selling commodities. By analyzing various economic, financial, and geopolitical factors, traders can gain a better understanding of the supply and demand dynamics of commodities and make profitable trades.

Trading Execution and Order Types

When it comes to commodity trading, it is important for beginners to understand the different types of orders they can place to execute trades. Here are three common order types:

Market Orders

A market order is the simplest type of order. It is an instruction to buy or sell a commodity at the best available price. Market orders are executed immediately at the current market price, which means that the price you pay or receive may be different from the price you saw when you placed the order.

Limit Orders

A limit order is an instruction to buy or sell a commodity at a specific price or better. When placing a limit order, traders set a maximum price they are willing to pay for a commodity or a minimum price they are willing to accept for a commodity they want to sell. The order will only be executed if the market reaches the specified price or better.

Stop Orders

A stop order is an instruction to buy or sell a commodity when it reaches a specific price. There are two types of stop orders: stop-loss orders and stop-entry orders. A stop-loss order is used to limit losses by automatically selling a commodity if its price falls below a certain level. A stop-entry order is used to enter a position when the price of a commodity reaches a certain level.

By understanding these basic order types, beginners can start to develop a trading strategy that suits their needs and risk tolerance. It is important to note that each order type has its own advantages and disadvantages, and traders should carefully consider their options before placing an order.

Regulatory Considerations

Compliance and ethics.

When it comes to commodity trading, regulatory compliance is crucial. Commodity trading is a highly regulated industry, and traders must adhere to a range of rules and regulations to ensure that they are operating within the law. In addition to regulatory compliance, traders must also adhere to ethical standards and principles to ensure that they are operating in a fair and transparent manner.

To ensure compliance and ethical behavior, traders should familiarize themselves with the regulatory bodies that oversee commodity trading. These bodies include the Commodity Futures Trading Commission (CFTC) in the United States, the Financial Conduct Authority (FCA) in the United Kingdom, and the Australian Securities and Investments Commission (ASIC) in Australia. Traders should also be aware of the regulations and guidelines set forth by these bodies and ensure that they are following them at all times.

Understanding Regulations

Commodity trading regulations can be complex and difficult to understand, especially for beginners. However, it is important for traders to have a good understanding of the regulations that govern commodity trading to ensure that they are operating within the law.

One of the key regulations that traders must be aware of is the requirement to register with regulatory bodies. In the United States, for example, commodity traders must register with the CFTC and become members of the National Futures Association (NFA). Traders must also adhere to rules and regulations regarding margin requirements, position limits, and reporting requirements.

Traders should also be aware of regulations regarding insider trading, market manipulation, and other unethical practices. These regulations are designed to ensure that commodity trading is fair and transparent and that all traders are operating on a level playing field.

In conclusion, regulatory compliance and ethical behavior are essential for success in commodity trading. Traders must be familiar with the regulations that govern commodity trading and ensure that they are following them at all times. By doing so, traders can help to ensure that they are operating in a fair and transparent manner and can build a successful career in commodity trading.

Risk Management Techniques

Commodity trading is a risky business, and it is important for beginners to understand how to manage risks effectively. Here are some risk management techniques that can be used:

1. Stop Loss Orders

A stop loss order is an order placed with a broker to sell a commodity when it reaches a certain price. This is a useful tool for managing risk as it limits the amount of money that can be lost on a trade. Stop loss orders can be set at a specific price or as a percentage of the commodity’s value.

2. Diversification

Diversification is the practice of investing in a variety of commodities to spread risk. By investing in multiple commodities, the risk of loss is reduced as losses in one commodity can be offset by gains in another. It is important to note that diversification does not eliminate risk entirely, but it does help to manage it.

3. Position Sizing

Position sizing is the practice of determining the appropriate size of a trade based on the amount of risk a trader is willing to take. This involves calculating the potential loss on a trade and setting the position size accordingly. By limiting the size of each trade, the potential losses are also limited.

4. Risk/Reward Ratio

The risk/reward ratio is a measure of the potential profit compared to the potential loss on a trade. A good risk/reward ratio is typically 2:1 or higher, meaning that the potential profit is at least twice the potential loss. By ensuring that the potential profit outweighs the potential loss, traders can manage risk effectively.

In conclusion, managing risk is essential for success in commodity trading. By using stop loss orders, diversification, position sizing, and risk/reward ratios, beginners can minimize their losses and increase their chances of success.

Continued Education and Resources

As a beginner in commodity trading, it is important to continue learning and staying up-to-date with the latest trends and news in the market. There are several resources available to help traders expand their knowledge and improve their trading strategies.

One of the best ways to continue education is by attending seminars and workshops. These events provide an opportunity to learn from experienced traders and industry experts, and to network with other traders. Many commodity trading firms offer free seminars and workshops, while others charge a fee.

Online courses and webinars are also a great way to continue education. There are several reputable online platforms that offer courses on commodity trading, including Udemy, Coursera, and edX. These courses cover a range of topics, from basic trading concepts to advanced trading strategies.

Another valuable resource for commodity traders is financial news websites and publications. Websites such as Bloomberg, Reuters, and CNBC provide up-to-date news and analysis on the commodity markets. Traders can also subscribe to industry publications such as The Wall Street Journal, The Economist, and Barron’s.

In addition to these resources, traders should also consider joining a trading community or forum. These communities provide a platform for traders to share ideas, ask questions, and discuss market trends. Some popular trading communities include Trade2Win, Elite Trader, and Forex Factory.

By taking advantage of these resources, beginner commodity traders can continue to expand their knowledge and improve their trading strategies.

Share this post

Subscribe to our newsletter... and reply to any emails with your questions..

Shipping And Commodity Academy © Copyright 2023 All rights reserved, company of the group Chromatic Dragon Sàrl.

DOWNLOAD BROCHURE

*The brochure will be sent to your email after clicking on ‘Download’

• Search Search Please fill out this field.
• Futures Trading Basics
• Pros and Cons
• Selecting a Platform
• Developing a Plan

Contract Specifications

Futures markets to trade.

• How to Trade Futures

Putting It All Together

• Futures Trading FAQs

The Bottom Line

• Futures and Commodities Trading

How to Trade Futures: Platforms, Strategies, and Pros and Cons

Futures can be used to speculate or hedge on an asset's price direction

Futures aren't a new type of financial instrument. In fact, they came about in the mid-19th century, allowing grain farmers to sell their wheat for forward delivery . Since then, they've evolved to include different securities and financial instruments, along with other commodities.

Futures trading provides investors with a fast and cost-effective means of accessing global financial and commodity markets. Investors can speculate or hedge on the price direction of the particular security or instrument they're trading. This is done by purchasing a  futures contract . A futures contract is a legal agreement to buy or sell an asset at a predetermined price at a specified time in the future.

But what are the pros and cons of trading futures? This article explores some of the benefits and challenges you may encounter while trading your futures.

Key Takeaways

• Investors can trade futures to speculate or hedge on the price direction of a security, commodity, or financial instrument.
• Key futures markets include stock indexes, energy, currencies, cryptocurrencies, interest rates, grains, forestry, and livestock.
• Advantages of futures trading include access to leverage and hedging while disadvantages include overleveraging and challenges presented by expiry dates.
• Choose a futures trading platform that is intuitive, offers multiple order types, and has competitive fees and commissions.
• A basic futures trading plan should include entry and exit strategies as well as risk management rules.

The Basics of Futures Trading

As its name suggests, a futures contract is a financial instrument through which a buyer and seller agree to transact an asset at a fixed price at a future date. Despite a futures contract providing the opportunity for the delivery of an asset, most don't result in physical delivery but are rather used by investors to speculate on a security's price or hedge risk in a portfolio.

Traders can speculate on a wide range of securities and commodities by trading futures. Key futures markets include stock indexes , energy, currencies, cryptocurrencies, interest rates , grains, forests, and livestock.

Most futures contracts are traded through centralized exchanges like the Chicago Board of Trade and the Chicago Mercantile Exchange (CME) . Many cryptocurrency brokers, such as Binance, offer perpetual futures —a contract without an expiry date—allowing traders not to worry about an expiry month.

Futures trading requires investors to settle their contracts. This is in contrast to options trading , which gives the trader the right but not the obligation to settle their contracts.

Advantages and Disadvantages of Futures Trading

Just like any other strategy or trading method, there are some key benefits and drawbacks that you should be aware of before you start. These points are just as valuable if you're a novice investor or if you're a seasoned pro.

• Leverage: Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or  borrowed capital —to increase the potential return of an investment. Futures are traded with leverage on margin , allowing investors to control larger positions with a small initial outlay. However, this can be a double-edged sword if the asset's price moves in the unintended direction. Traders should be aware they can lose more than their initial margin when trading futures contracts.
• Diversification: Investors can trade futures on everything from stock indexes to orange juice, helping to provide a diversified portfolio across multiple asset classes.
• After-Hours Trading: Futures allow traders to take advantage of opportunities nearly around the clock. For example, a trader may wish to go to long futures contracts on the Nasdaq 100 Index if several mega-cap technology stocks report better than expected earnings after the market close.
• Hedging: Investors can use futures to protect unrealized profits or minimize potential losses. The wide selection of futures products available allows traders to take a cost-effective hedge against the broader market or specific sectors and individual commodities.

Disadvantages

• Complex: While anyone can trade futures, there are some complexities involved that can make this a complicated process. You will require a good deal of time and effort if you want this strategy to be successful. This means monitoring the market and keeping on top of current events.
• Over-Leverage: Leverage is a double-edged sword. On the one hand, it can be advantageous to amplify returns with less of a cash outlay. However, if markets turn against you, you will be responsible for the full amounts of the losses and be subject to margin calls. In other words, leverage will also amplify losses.
• Managing Expiry Dates: Most futures contracts have an expiry date that traders need to monitor. As the contract approaches its expiry, its price may rapidly lose value or even become worthless. To combat this, investors frequently roll forward their futures contracts to a longer-dated one as the expiry date approaches.
• Physical Delivery: If you fail to close your positions or you don't trade them off into offsetting contracts over, you do run the risk of taking physical delivery of the underlying asset. At this time, you'll have to pay the agreed-upon price.

Wide array of asset classes

Easy to short the market

Extended trading hours

Over-Leverage

Must manage contract expiration

Failure to roll or close positions can lead to physical delivery

Selecting a Futures Trading Platform

Investors should do their research as they work through selecting a futures trading platform . But what criteria should you be looking for as you decide on one? Here are a few things you should make sure your platform can do for you:

• Is intuitive to use
• Offers multiple order types to help with risk management
• Has competitive fees and commissions

More advanced traders may want a platform that provides application programming interface (API) access to allow algorithmic trading functionality. Active traders should select a futures platform with a mobile trading app that lets them execute trades and manage positions on the go.

Most full-service online brokerages and trading platforms have access to futures trading. You will need to request and be granted approval to begin trading these markets.

Developing a Futures Trading Plan

As with trading stocks or other financial assets, it's important for investors to develop a plan for trading futures that outlines entry and exit strategies as well as risk management rules.

If a trader uses technical analysis to locate entries, they may decide to open a long futures trade on a golden cross signal—when the 50-day simple moving average (SMA) crosses above the 200-day simple moving average. The trading plan could also include a stop-loss order placed 5% below the entry price to manage downside risk.

On the other hand, a futures trading plan that's centered around fundamental analysis might generate buy or sell signals based on crop or energy inventory reports. For instance, a trader may short an oil futures contract if weekly oil inventories grow at a faster pace than analysts had expected. Of course, some traders may incorporate both technical and fundamental analysis into their futures trading plan.

In general, there are three futures trading plans:

• Long : Buy futures and profit when the prices increase.
• Short : Sell futures contracts and profit when the prices decrease.
• Spread : Simultaneously buy different futures contracts and profit when the relative price difference widens (or narrows). These can be on the same underlying but using different expiration dates, or on futures in two closely-related products like crude oil and gasoline.

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.

Before trading futures, investors need to know several key elements about futures contracts to help determine position size and manage risk. These include contract size, contract value, and tick size. We’ll use the popular E-mini S&P 500 futures contract offered by the Chicago Mercantile Exchange (CME) as an example.

• Contract Size: As its name suggests, the contract size refers to the deliverable quality of the asset that underlies the futures contract. For example, the E-mini S&P 500 is $50 times the price of the S&P 500 index .
• Contract Value: Investors calculate the contract value by multiplying the contract size by the current price. Let's say a trader holds one contract of the E-mini S&P 500 and the underlying index trades at $4,800. This means the contract value equals $240,000 ($50 x $4,800).
• Tick Size: The tick size refers to the minimum price change of a futures contract. In other words, the smallest amount that the price of a particular contract can fluctuate. For instance, the E-mini S&P 500 has a tick size equal to one-quarter of an index point . As one index point equals $50 in the E-mini, one tick is the equivalent of $12.50 ($50/4).

Futures contracts are listed on several different products comprising many different asset classes. Among the most popular include:

• Equity indexes , such as the S&P 500 or Nasdaq 100
• Hard commodities like precious metals
• Soft commodities, including agricultural products like livestock or crops
• Energy, such as crude oil and natural gas
• Currencies, including pairs like EUR/USD or GBP/JPY
• Treasury securities like U.S. government bonds and rates
• Crypto, including Bitcoin and Ether

Steps on How to Trade Futures

The following are some of the key steps that you should follow in order to start trading futures:

• Understand how it works. Trading futures contracts isn't necessarily the same as regular trading. That's because there are complexities that you'll need to comprehend, including how contracts work, the expectations as a buyer or seller, and expiry dates.
• Know the risks . There are certain risks inherent in futures trading that you won't find anywhere else. Among these are price sensitivity and margin trading, which means that you use leverage or borrowed capital to make your trades.
• Pick your market. Will you trade stock futures or commodities ? Or do currency and interest rate futures pique your interest? If you're keen on international markets, you may want to consider bond and Treasury futures. But these aren't the be-all-and-end-all of futures trading. In fact, there's a wide range of choices from which you can choose.
• Narrow down your investment strategy. Will you go long or go short? Or will you decide to go long and short by using calendar spreads ?
• Finally, choose your trading platform. Remember the tips we highlighted above on choosing the one that is best suited to you and your trading needs.

Now that we've explored the basics, let's put everything all together in a trading example using the E-mini S&P 500 futures. Say the S&P 500 index recently broke out to a new all-time high , and we want to fade the move, hoping to book profits on a retracement to the initial breakout area around $4,720. Our money management rules stipulate that we risk no more than 1% of our futures trading account on any one trade and our broker requires a margin of $12,000.

Knowing this information, we decide to open a short position , trading one contract and managing risk by placing a stop-loss $25 (or 100 ticks) above our entry price of $4,786. As we risk $1,250 ($12.50 per tick x 100), we should have at least $125,000 in our futures trading account to meet the 1% risk per trade rule ($1,250 = 1% of $125,000). Ideally, we should have more in our account to cover the $12,000 margin requirement and guard against margin calls if the price of the S&P 500 moves against us.

We then place a take-profit order at the initial breakout area at $4,720 (264 ticks) or $66 below our entry price. If the market moves in our favor and hits the order, we make a profit of $3,300 ($12.50 per tick x 264).

Conversely, we incur a $1,250 loss if we get stopped out . In any case, the future trade offers a favorable risk/reward ratio of 1:2.64 or $1,250 risk per contract versus $3,300 reward per contract.

What Assets Can Be Traded Using Futures?

Futures contracts are financial instruments that allow investors to speculate or hedge their bets on the price movement of a specific security or asset in the future. There is no limit to the type of assets that investors can trade using these contracts. As such, they can trade the following futures: stocks, bonds, commodities (energy, grains, forestry, livestock, and agricultural products), currencies, interest rates, precious metals, and cryptocurrencies, among others.

What Are the Key Advantages and Disadvantages of Trading Futures?

Investors should have a basic if not thorough understanding of how futures trading works before they begin. Knowing the benefits and drawbacks can spell the difference between success and loss .

Some of the main advantages include being able to use leverage (borrowed capital) to execute trades, the ability to choose from a diverse set of financial contracts, nearly round-the-clock trading, and being able to take a cost-effective hedge against the broader market.

On the other hand, investors should understand that futures trading can be fairly complex and it can lead to overleveraging. It may also be difficult to juggle and monitor expiry dates, especially if investors trade multiple contracts. Finally, traders run the risk of having to take physical delivery of the underlying asset if they don't close out or roll their positions into an offsetting contract by the expiry date.

What Should I Look Out for When Selecting a Futures Trading Platform?

Trading platforms for futures trading should align with your trading strategy and financial situation—the same way you would choose to a platform for any other financial transactions. Some key considerations you may want to take into account include how intuitive it is and whether it offers multiple order types. You should also review the platform's fees and commissions and ensure they are competitive.

What Are Some Basics to Include in a Futures Trading Plan?

A futures trading plan will revolve around your specific trading strategy. That is, your plan should factor in if you're a technical analyst or if you use fundamental analysis in your trading. You may choose to go long or short, or you may decide to use calendar spreads. Whatever you choose, it's always a good idea to plan your entry and exit strategies and basic risk management rules .

Futures are derivative contracts that let you speculate on the future price of some asset or commodity, or to let you hedge against existing positions. Because they utilize leverage, futures can amplify your bets, making for larger returns, but also larger losses.

Futures also have expiration dates, so you need to be careful to roll over or close out positions so not to be stuck with physical delivery of unwanted commodities. To start trading futures, you will need to find a brokerage that offers access to these markets and then get approval.

Commodity Futures Trading Commission. " History of the CFTC ."

Commodity Futures Trading Commission. " Basics of Futures Trading ."

The U.S. Endowment for Forestry and Communities. " Future Markets ."

CME Group. " Markets ."

Binance. " What Are Perpetual Futures and Quarterly Futures ."

Commodity Futures Trading Commission. " Economic Purpose of Futures Markets and How They Work ."

CMEGroup. " E-mini S&P 500 Futures and Options ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

• Business & Office
• Business & Marketing Plans
• Business Planning

No featured offers available

• Quality Price,
• Reliable delivery option, and
• Seller who offers good customer service

Image Unavailable

• To view this video download Flash Player

Commodities Trading Firm Business Plan - MS Word/Excel

Product details.

• Is Discontinued By Manufacturer ‏ : ‎ No
• Date First Available ‏ : ‎ July 25, 2008
• Manufacturer ‏ : ‎ BizPlanDB
• ASIN ‏ : ‎ B001D9HX52

Product Description

The Commodities Trading Firm Business Plan is a comprehensive document that you can use for raising capital from a bank or an investor. This document has fully automated 3 year financials, complete industry research, and a fully automated table of contents. The template also features full documentation that will help you through the business planning process. This is a full and complete business plan with original research, financial models, and marketing/advertising plans that are specific for a Commodities Trading Firm. Since 2005, BizPlanDB and its parent company have helped raise more than $100,000,000 through its developed plans.

Looking for specific info?

Customer reviews.

Customer Reviews, including Product Star Ratings help customers to learn more about the product and decide whether it is the right product for them.

To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average. Instead, our system considers things like how recent a review is and if the reviewer bought the item on Amazon. It also analyzed reviews to verify trustworthiness.

No customer reviews

• Amazon Newsletter
• About Amazon
• Accessibility
• Sustainability
• Press Center
• Investor Relations
• Amazon Devices
• Amazon Science
• Sell on Amazon
• Sell apps on Amazon
• Supply to Amazon
• Protect & Build Your Brand
• Become an Affiliate
• Become a Delivery Driver
• Start a Package Delivery Business
• Advertise Your Products
• Self-Publish with Us
• Become an Amazon Hub Partner
• › See More Ways to Make Money
• Amazon Visa
• Amazon Store Card
• Amazon Secured Card
• Amazon Business Card
• Shop with Points
• Credit Card Marketplace
• Reload Your Balance
• Amazon Currency Converter
• Your Account
• Your Orders
• Shipping Rates & Policies
• Amazon Prime
• Returns & Replacements
• Manage Your Content and Devices
• Recalls and Product Safety Alerts
• Conditions of Use
• Privacy Notice
• Consumer Health Data Privacy Disclosure
• Your Ads Privacy Choices

• Best Overall
• Best for Commodity ETFs
• Best for Low-Cost Futures
• Best for Global Trading
• Best Research Strategy Database
• Best for Trading Tools
• Best for Margin Traders and IRAs
• Best for Buying Gold
• Best for Education and Expert Research
• Why You Should Trust Us

Best Commodity Trading Apps of May 2024: An Investor's Guide

Paid non-client promotion: Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate investing products to write unbiased product reviews.

To start investing in commodity stocks, ETFs, and futures contracts, educate yourself on the different types of investable commodities like oil, agricultural products, gold, and other precious metals. The commodity market is volatile, so create a custom risk management plan and invest through a reputable online or traditional in-person broker. Stay up-to-date on current market conditions and adapt your investing strategy as needed. 

Best Commodity Trading Apps 2024

• TD Ameritrade: Best overall for beginners
• eToro USA : Best for commodity ETFs
• tastytrade: Best for low-cost futures
• Interactive Brokers: Best for global trading
• Tradeworks: Best research strategy database
• NinjaTrader: Best for trading tools
• E*TRADE: Best for margin traders and IRAs
• Goldco : Best for buying gold
• Charles Schwab: Best for education and expert research

Compare the Top Commodity Trading Platforms

The best commodity apps allow traders and investors to access global commodity markets and trade valuable commodities like precious metals, energies, agricultural products, and digital currencies.  Some commodity platforms offer trading directly on your smartphone or tablet. 

Here are the best apps for trading precious metals and other commodities as picked by Business Insider editors in 2024. 

TD Ameritrade: Best Overall

TD Ameritrade is one of the best online brokerages for future trading and low-cost mutual funds. TD Ameritrade has low fees overall, but commissions on futures are slightly higher than other brokers on this list. But a regular DIY TD Ameritrade account has no minimum investment requirement. 

TD Ameritrade offers commodity futures for metals, energies, agriculture, currencies, softs, stock indexes, interest rates, cryptos, and micros. You'll pay $2.25 per future contract.

The brokerage offers a range of educational resources about futures investing basics, resources on maximizing capital efficiency, how futures compare with stocks, and much more. Beginner investors can benefit from TD Ameritrade's "Fundamentals of Futures" course, which provides demos, videos, and quizzes on futures trading and related topics.

TD Ameritrade review

eToro: Best for Commodity ETFs

eToro offers a range of commodity ETFs for trading, including physically backed funds, equity funds, CFDs, and exchange-traded notes (ETNs). Commodity ETFs are a great way for investors to diversify their investment portfolios with significantly less risk than investing in physical commodities. The downside is that eToro does not offer commodity futures.

With eToro USA you can invest in commodity ETFs such as the United States Gasoline Fund (UGA), iShares Silver Trust (SLV), SPDR S&P Oil & Gas Exploration & Production (XOP), GraniteShares Gold Trust (BAR), PowerShares DB Oil Fund (DBO), Direxion Daily Gold Minor Index (DUST), and Direxion Daily S&P Oil & Gas Exp. (DRIP). 

eToro USA review

tastytrade: Best for Low-Cost Futures

tastytrade (previously known as tastyworks) allows investors to trade commodities such as futures, options, futures options, ETFs, and stocks with no account minimum. Available commodities include energy (like coal and crude oil), agriculture (like corn and soybeans), precious metals (like gold and silver), and currencies. 

tastytrade commodity futures span multiple asset classes, including futures, micro futures, small futures, small futures options, and futures options. Opening commissions per contract for futures range from $0.25 to $2.50.

Closing commissions per contract range from $0.00 to $1.25.  Moreover, you can use tastytrade's Trading Pairs feature to balance out your investment portfolio. For example, you can invest in the gold and silver ratio, energy pairs, or grain pairs.

tastytrade review

Interactive Brokers: Best for Global Trading

Interactive Brokers offers global commodity futures over 30 market centers on the globe. Commodity assets for futures trading include agriculture, energy, currencies, metals, and softs. Futures commissions range from $0.25 to $0.85 per contract. There is a $0 ($100 Interactive Advisors automated accounts) minimum to start investing with Interactive Brokers.

With an Interactive Brokers account, you'll get access to multiple features, including futures trading tools like:

• ComboTrader: Investors can choose from various pre-established programs for executing futures trades or create their own proprietary combination order strategies. 
• SpreadTrader: This is a command center for managing futures positions. It's integrated with Interactive Brokers' Trader WorkStation (TWS) feature. 
• Index Arbitrage Meter: This measurement tool analyzes index arbitrage strategies. It illustrates the spreads between feature contracts and spot prices. 

Interactive Brokers review

Tradeworks: Best Research Strategy Database

Tradeworks is an automated trading platform that implements algorithm research strategies and custom automated rules through trading bots. Tradeworks is not a broker itself but rather a tool that can be connected with an existing brokerage account. However, Tradeworkers can only be implemented with MetaTrader 4 brokers like Avatrade, IC Markets, and FP Markets. 

Although Tradeworks doesn't offer commodity trading directly, the platform can assist you in designing, testing, running, and analyzing trading strategies. Some of the best features include the Algo editor, the improved backtest tool, and the advanced performance analytic feature for real-time analysis of your trading strategies. 

Tradeworks has four account options:

• Incubator plan: For $99 per month, you won't get access to trading accounts or active robots. But you can still access 10 backtests per day. 
• Solo plan: For $49 per month, you can open one trading account and one active robot, plus 30 backtests per day. 
• Trio plan: For $99 per month, you can open one trading account, three active robots, and 100 backtests per day.
• Octet plan: For $199 per month, you can open three trading accounts, eight active robots, and unlimited backtests per day. 

All account options on Tradeworks are currently only $1 for the first month.  

Tradeworks review

NinjaTrader: Best for Trading Tools

NinjaTrader is an online futures trading platform with over 100 futures trading tools, like customizable apps and strategies, free simulated trading accounts, live customer support, advanced charting features, drawing tools, automated strategies, and low-cost trades. There's no account minimum needed to open a NinjaTrader account. 

Agricultural commodity trading on mobile is available on NinjaTrader, along with metal futures, natural gas futures, forex futures, crude oil futures, stock index futures, crypto futures, and interest rate futures. Regular futures commissions start at $0.59 per contract and $0.90 per contract for micro futures.

NinjaTrader review

E*TRADE: Best for Margin Traders and IRAs

E*TRADE offers more than 60 futures contracting across various markets, including metals, energies, grains, softs, livestock, and currencies. The brokerage also offers interest rates, crypto, and equity index futures. Investors can trade regular futures, micro futures, and E-mini futures.

Future commissions cost $1.50 per trade, but additional futures exchange fees and National Futures Association (NFA) fees may apply. Cryptocurrency futures cost $2.50 per contract. 

You must have an E*TRADE margin-enabled brokerage account or an eligible IRA to trade futures. You'll get 24/6 market access (from Sunday 5 p.m. to Friday 4 p.m. CT). Other features include no short sale restrictions, mobile access, formulated trading strategies, a suite of drawing tools, and access to E*TRADE's Futures Research Center. 

E*TRADE also offers commodity ETFs that almost exclusively invest in commodity assets like agriculture, energy, or metals. There are no additional trading fees for ETFs. 

To open a margin account with E*TRADE, you must have at least $2,000 in your account. IRAs have a $500 minimum to open an account. That means before you can invest in commodity futures or ETFs, you must at least deposit $500 in your account. If you don't want to invest in an IRA, you must open a margin trading account for a much higher minimum. 

E*TRADE review

Goldco: Best for Buying Gold

Goldco is our top pick for the best gold IRA . It allows investors to trade physical gold bullion and gold coins with an IRA, or get physical gold sent directly to them. Goldco also offers silver IRAs, platinum IRAs, and palladium IRAs.

Goldco is one of the industry's most trustworthy gold investing firms, with an A+ from the Better Business Bureau and a history of great customer support services. Another perk is that Goldco charges lower fees on greater asset amounts than some competitors.

Goldco allows you to fund your account with rollovers for 401(k)s, 403(b)s, IRAs, thrift savings plans, and savings accounts. The firm can also convert gold assets into cash for you. On the downside, you'll need at least $25,000 to open an IRA with Goldco, which is higher than with similar platforms like Augusta Precious Metals or Noble Gold Investments.

Gold review

Charles Schwab: Best for Education and Expert Research

Charles Schwab offers commodity regular future trades and micro E-mini futures for energies, financials, metals, softs, livestock, and agriculture. The brokerage allows you to pay the same price for online and broker trades. And you'll get 24/7 customer support. You can even use Charles Schwab's team of specialists to review and place your futures trades. 

Although contract fees for futures are higher than with similar brokerages ($2.25 per contract), investors will get access to Charles Schwab's vast range of research tools. This includes Schwab's Futures Research Center, daily analysis on the futures market, access to independent analysis from the Hightower Report and Wyckoff Report, and daily videos from futures experts.

Charles Schwab review

Range of Tradable Commodities

Examples of tradable commodities include precious metals, energy (i.e., gold and silver), livestock, softs, and other agricultural products. Commodities can be directly traded for goods or cash, but other ways exist to invest in commodities.

Instead of dealing with the hassle of owning physical gold or cattle, you can indirectly invest through a brokerage account and trade commodity futures contracts. For example, you can invest in energy future trading applications to buy oil, natural gas, and other agricultural futures, like wheat and coffee. 

With commodity futures, the futures contract holder must buy or sell a commodity on a specific date for a specific price to make a profit. Since futures tend to be volatile investments, individual investors may prefer options based on a futures contract, as holders aren't obligated to sell on a certain date. 

Another option to invest in commodities is through stocks, ETFs, and mutual funds. These assets invest in companies that produce or process commodities. Mutual funds and ETFs are great tools for diversifying your investment portfolio and lowering your risk of exposure. 

The Rise of Mobile Commodity Trading

Diversifying your investment portfolio with commodities has become an increasingly popular investment strategy over the last few years. Adding commodities can be a great addition to a retirement savings plan or other long-term investment account.  

Mobile commodity trading, in particular, has become a more sought-after investment strategy driven by advancements in trading app technology and the demand for on-the-go market access. Commodity trading apps offer an accessible way for investors to access real-time commodity pricing, advanced charting tools, and social trading features like chat rooms. 

If you're new to investing in commodities or need help establishing a financial plan, you can find a financial advisor for expert guidance and advice. It's important to find the best financial advisor you can find.

Commodities vs. Stock Futures

Commodities are physical assets and goods like crops, energy resources, agriculture products, precious metals, or currencies. Commodities can be bought and sold for cash or other goods. On the other hand, stock futures are legal contracts that require the holder to buy or sell a stock or other asset by a specific date for a specific price. 

When investing in commodity futures, you are legally obligated to sell or buy a commodity for a specific price on a specific date. You'll make a profit if the spot price of a commodity rises since the seller will still have to sell the asset at the set price. However, commodities are generally volatile assets with high risk. 

Getting Started with a Commodity Trading App

The best brokers for buying commodities offer diverse investments, low contract fees, accessible interfaces, and advanced charting features and tools. Experienced investors can trade commodity futures, options, ETFs, and mutual funds through online brokerages.

Only advanced traders with a high-risk tolerance should invest in commodities . However, some commodity trading apps with low fees offer beginner-friendly educational resources that may suit new investors. Mobile apps for commodity market analysis may be better suited for advanced, hands-on traders. 

If you're interested in investing in precious metals, consider some of the best apps for trading precious metals, like physical gold as bullion bars or ingots. Unlike some commodities like livestock or agriculture, physical gold can be easy to store and won't expire. Plus, gold is largely immune to inflation and is a great hedge against economic struggles and disasters.  You can buy gold from banks or gold dealers. 

You can also invest in some of the best gold IRAs . But keep in mind that storage fees, custodial fees, and set-up costs tend to be higher with gold IRAs than other IRA plans. For instance, annual fees tend to exceed $100. Another thing to consider is that gold IRAs don't usually award dividends or yield high returns. 

The following futures and commodities brokers offer some of the best investment options, account features, educational resources, and fees for futures and commodities brokers. Before jumping in head first, thoroughly compare the different brokerage account offerings and features to ensure you pick the best one.

Commodity Glossary

• Dow Futures Live Stream: The Dow Jones is one of the top stock market indexes, tracking 30 of the most prominent US companies on the stock market. You can use the Dow Futures Live Stream to watch real-time futures trading. You can also access real-time charts, news, futures analysis, and more. 
• Commodities: Commodities are tangible, publically traded goods or assets, such as agricultural products, precious metals, energy resources, livestock, meats, and more. You can invest in commodities directly or indirectly through a brokerage.
• Commodity Market: Similar to the stock or bond market, the commodity market is a market that trades raw and primary goods and products. For example, the commodity market can trade soft commodities like wheat, sugar, coffee, or cocoa. Another example is metal commodities, which are mined materials like gold or silver. 
• Commodity Future: One of the most popular ways to invest in commodities like agricultural goods or mined raw materials is through futures contracts. Rather than investing directly in a commodity, holders are obligated to buy or sell a commodity at a certain for a set price. The best brokers for buying commodities offer a range of commodity futures across different markets.
• Stock Futures Investing: You can invest in stock futures to hedge against inflation and diversify your investment portfolio. Stock futures are available through brokerages. 

Commodity Brokerages that Didn't Make Our List

• TradeStation: You can invest in futures for metals, energies, softs, meats, agriculture, and more with TradeStation. However, the brokerage has a complex fee structure, and future contracts may be pricier compared to other platforms. 
• Plus500: Plus500 is a European broker popular for future trading. It offers a range of commission-free indices, commodities, and currencies for trading across multiple markets. But Plus500 is unavailable in the US, so US investors should look elsewhere. 
• Optimus Futures: Optimus is a discount brokerage for forex and futures trading. It offers self-directed, automated, institutional, and professional trading, and you can open an IRA. The brokerage has a large selection of educational resources and support access for users, but there's a $500 minimum to open an account. 
• ActivTrades: ActivTrades is a UK-based forex broker that offers forex trading, shares, indices, crypto, ETFs, commodities, and bonds. However, ActivTrades isn't available for US residents.
• Tickmill: You need at least $100 to open a classic account with Tickmill and access multiple trading accounts, educational resources, and trading tools. Tickmill isn't available in the US and has an outdated platform design.  

Beginners can trade commodities by opening a brokerage account with a low-cost investing platform that offers commodities as a trading option. Some investment platforms offering commodity trading include TD Ameritrade, Goldco, and E*TRADE. 

A commodity trader is an individual trader or business that assists clients in buying, selling, and investing in commodities like agricultural products, livestock, precious metals, and energy resources. Similar to a stock broker, commodity traders are professionals who trade assets over multiple exchanges. 

In a commodity market, you can trade raw goods, natural resources, and limited-manufactured products such as precious metals, livestock, meats, crops, energy resources, and softs. You can trade physical commodities or commodity assets through indirect trading strategies. 

A commodity investment is a type of alternative investment offered by some traditional and online brokerages. Commodity investments are tangible goods like agricultural products, energy resources, crops, and precious metals. 

The best app for commodity trading depends on what commodity assets you want to trade, your price point, your investing style, and the kind of investing account you want to open. Some of the best apps for trading commodities include eToro USA, tastytrade, Charles Schwab, and Goldco.

The best commodity trading app for beginners is TD Ameritrade since it is a low-cost, easy-to-access investment platform. It also offers educational resources to help beginners understand the ins and outs of commodity investing. 

Why You Should Trust Us: Our Expert Panel For The Commodity Trading Apps

We interviewed the following investing experts to see what they had to say about commodity trading apps. 

• Sandra Cho , RIA, wealth manager, and CEO of Pointwealth Capital Management
• Tessa Campbell , Investment and retirement reporter at Personal Finance Insider

What are the advantages/disadvantages of investing in commodities?

Sandra Cho:

"The advantages are that commodities can serve as a hedge during high inflationary times. This can be helpful if one expects inflation to rise in the near term.

"The disadvantages are that commodities do not offer the same long-term growth that is present in stocks. They also do not offer the same kind of stability that is present in bonds. In general, commodities are better as a short-term option during times of inflation versus a long-term investment where your money is parked for many years."

Tessa Campbell: 

"The advantage of investing in commodities is portfolio diversification and hedging against inflation. Investing in tangible goods like crops, energy, precious metals, and currencies can counterbalance traditional investable assets like stocks or bonds. Diversifying your portfolio with traditional investment options and commodities mitigates your portfolio's risk. Moreover, investing in assets like gold or silver can increase portfolio stability.

"The disadvantage of investing in commodities is that they are generally illiquid. Commodities also don't earn dividends or accumulate interest." 

Who should invest in commodities?

"Investors who believe that a rise in inflation may be coming should potentially view commodities as a good investment. However, I recommend talking with a financial advisor before making any concrete decisions."

Tessa Campbell:

"Most commodity investments are considered high-risk and are generally best for experienced investors with a high-risk tolerance. However, some commodities (like precious metals) are more stable and don't pose as high of a risk. Precious metals can still be expensive, but more conservative investors may find investing in gold or silver a great way to diversify their investment portfolios."

Is there any advice you'd offer someone who's considering investing in commodities?

"I would advise them to talk with a financial professional. Commodities can be a useful investment if used at the right time. However, many investors do not know when that time is. Talking with a professional will give investors the insight they need when deciding whether or not to invest in an asset class like commodities."

"If you're going to invest in more volatile commodities, such as agricultural products that depend on nature or other non-predictable elements, do thorough research before investing. You should also consider how you want to invest in commodities — whether that be investing in physical commodities themselves, commodity futures, or commodity stock — and make sure to understand the level of risk involved in investing in these assets."

Methodology: How to Choose a Commodity Broker

We used Business  Insider's methodology for rating investment platforms when reviewing brokers for commodity trading to find the best platforms for low fees, multiple asset options, futures trading tools, and customer service. We also favored platforms that offered a range of other features and products, such as educational resources and account flexibility. Investment platforms are given a rating between 0 and 5.

• Main content

• Work & Careers
• Life & Arts

Become an FT subscriber

Try unlimited access Only $1 for 4 weeks

Then $75 per month. Complete digital access to quality FT journalism on any device. Cancel anytime during your trial.

• Global news & analysis
• Expert opinion
• Special features
• FirstFT newsletter
• Videos & Podcasts
• Android & iOS app
• FT Edit app
• 10 gift articles per month

Explore more offers.

Standard digital.

• FT Digital Edition

Premium Digital

Print + premium digital, weekend print + standard digital, weekend print + premium digital.

Today's FT newspaper for easy reading on any device. This does not include ft.com or FT App access.

• 10 additional gift articles per month
• Global news & analysis
• Exclusive FT analysis
• Videos & Podcasts
• FT App on Android & iOS
• Everything in Standard Digital
• Premium newsletters
• Weekday Print Edition
• FT Weekend Print delivery
• Everything in Premium Digital

Essential digital access to quality FT journalism on any device. Pay a year upfront and save 20%.

• Everything in Print

Complete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.

Terms & Conditions apply

Explore our full range of subscriptions.

Why the ft.

See why over a million readers pay to read the Financial Times.

International Edition

• Entertainment
• Newsletters

Trial begins for financial executive in insider trading case tied to taking Trump media firm public

Larry Neumeister

Associated Press

NEW YORK – An insider trading trial began Tuesday for a financial executive charged with enabling his boss and others to make millions of dollars illegally on news that an acquisition firm would be taking former President Donald Trump’s media company public.

In an opening statement, Assistant U.S. Attorney Elizabeth Hanft accused Bruce Garelick of tipping off his boss and friends to news in 2021 that the special purpose acquisition company, Digital World Acquisition Corp ., was merging with Trump Media & Technology Group.

Recommended Videos

Defense attorney Jonathan Bach insisted in his opening that Garelick was innocent and did not tip off anyone.

“He did not commit any crime. Bruce is an honest and ethnical man,” Bach told the jury in Manhattan federal court.

Several weeks ago, Garelick's co-defendants — Michael Shvartsman of Sunny Isles Beach, Florida, and his brother, Gerald Shvartsman of Aventura, Florida — pleaded guilty to insider trading charges, admitting that they made over $22 million illegally. They are scheduled to be sentenced on July 17.

Michael Shvartsman owned Rocket One Capital LLC, a venture capital firm, and Garelick, of Providence, Rhode Island, was the company's chief investment officer, though he has primarily worked in the Boston area throughout his career.

The indictment against the men did not implicate Trump, who is seeking the presidency again this year as a Republican, or Trump Media & Technology Group, which owns his Truth Social platform and began trading on the NASDAQ stock market on March 26.

Hanft told the jury Tuesday that Garelick and those he tipped off invested millions of dollars in the securities of the Digital World after they were tipped off that a potential target of DWAC was Trump Media.

When the deal was announced, the defendants sold their securities for $22 million in profits, though Bach noted that his client was only accused of making $49,000 from trades. He asked the jury if it made sense that Garelick would risk a reputation built over decades in the securities business for that amount of money.

“He followed the rules,” Bach said. “Bruce was not part of the same social circles as everybody else who was part of this case. ... He was nobody's close friend or buddy."

Hanft, though, said that Garelick took information he learned as a member of DWAC's board of directors and spread the secrets to others.

She said prosecutors will use witnesses, trading and phone records, along with emails and text messages to prove their case.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

We've detected unusual activity from your computer network

To continue, please click the box below to let us know you're not a robot.

Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy .

For inquiries related to this message please contact our support team and provide the reference ID below.